A correspondent writes in about this Bloomberg article, "Now we know why they wanted the Japanese subsidiary;"
"Suntech Power Japan Corp., a unit of China’s Wuxi Suntech Power Co., plans to expand beyond marketing solar panels to generating electricity for sale to retail customers in Japan."
A trusted Credit Bubble Stocks correspondent and gentleman farmer recommended we read The Farming Game. How can you resist a book with observations like this?:
"Rich to a wage freak means having lots of money to spend on himself. Rich to a capitalist means adequate funds to invest in schemes to produce profits that can be invested in other schemes."That is precisely how the best investors think about money. Someone who finds a $30,000 watch interesting is at a disadvantage compared to a value investor who would rather spend his time and money learning about wealth generating activity.
"A young guy ought to be able to work a forty-hour week for someone else and have enough vinegar left to work another forty hours for himself."This reminds me of how Buffett describes Charlie Munger in Snowball,
"Charlie, as a very young lawyer, was probably getting $20 an hour. He thought to himself, 'Who’s my most valuable client?' And he decided it was himself. So he decided to sell himself an hour each day. He did it early in the morning, working on these construction projects and real estate deals. Everybody should do this, be the client, and then work for other people, too, and sell yourself an hour a day."Grable's advice would be that you should farm part-time (although the second venture obviously doesn't have to be farming) until you can own enough land to farm full-time.
"The renewable nature of agriculture is the basic reason why farmers can become wealthy so easily"The only problem with this logic is that, since farmers buy their inputs retail and sell their outputs wholesale, it is very difficult to make abnormal profits except during temporary price price spikes when you have something like a crop failure to temporarily reduce supply.
"Today, the $25,000 election will change some decisions. Combine that with lower corn prices and will farmers stop investing? I doubt it. It may slow some choices, but you know that to succeed today you'll need to push the envelope and you can't do that from the back of a 15-year-old tractor pulling a 20-year-old planter. Too much is happening with engineering and technology."It's like the original Berkshire Hathaway! Your competitors keep investing in new equipment which they think will result in increased profits. Except, everyone's output goes up and the price of the crop goes down. The good news is that it feeds the planet and means that a "commodity supercycle" is just bubble talk.
"The reason Sherman [the Scalper] has been able to maintain a $50 profit margin through bull and bear is that he is quite capable of sitting on his hands. Blessed with infinite patience, he will wait until his price will buy."Like a value investor! Farmers are also a lot like shipowners,
"Everyone else does nothing but talk about the very good and rational reasons they have for not doing deals."And, commodity brokers are like the floor brokers in the Chicago futures markets. To try to get farmers to trade, they try to generate volatility and market moving news: "To avoid stagnation, it is necessary to develop stories." So they cold call farmers with rumors about bugs in Iowa corn to get them to trade grain contracts.
Ha:
"As usual, like the guy behind the World Wide Web (Berners-Lee), discovery of DNA structure (Crick), laser (Townes), atomic bomb, transistor (Shockley), electronic computer (Atanasoff et al.), etc., etc., Nakamoto is a ..."Physicist.
At the hearing today,
U.S. Bankruptcy Judge Christopher Sontchi said today that USEC has no financial projections and falling sales because of an oversupply of enriched uranium, raising the question of why it would bother to reorganize its balance sheet in bankruptcy. “What’s the point?” Sontchi asked D.J. Baker, a lawyer for USEC, at a hearing in Wilmington, Delaware. A reorganization might only “keep the company on life support for the next six to 10 years,” Sontchi said.
Genco (GNK) has retraced almost the entire decline since skipping its interest payment on unsecured notes. There's a 30 day grace period on the notes, so something is going to happen in about a week. It's too late to do an exchange offer and the notes are trading at 63, flat, so they are the fulcrum security. I would guess that the company will file Chapter 11 before the expiration of the grace period on the notes. Meanwhile, retail is excited about shipping stocks including Genco.
From the disclosure statement filed today.
"Each holder of an Allowed Noteholder Claim will receive, on the Distribution Date and in full satisfaction, settlement, release, discharge of, in exchange for, and on account of such Allowed Noteholder Claim, its Pro Rata share of (i) the New Noteholder Common Stock, (ii) Cash equal to the amount of the interest accrued at the non-default rate on the Old Notes from the date of the last interest payment made by the Debtor before the Petition Date to the Effective Date and (iii) the Majority New Notes.The bid on the bonds right now is exactly 39.
The Plan defines the New Noteholder Common Stock as 79.04% of the New Common Stock to be issued under the Plan, subject to dilution on account of the New Management Incentive Plan. The New Noteholder Common Stock will be issued in the form of Class A Common Stock as described in the New USEC Charter.
The Majority New Notes are the New Notes in the aggregate principal amount of $200.00 million, to be issued by the Reorganized Debtor under, and having the terms set forth in, the New Indenture, which Majority New Notes will have the benefit of the Limited Subsidiary Guaranty and the Subsidiary Security Agreement.
All distributions on account of Allowed Noteholder Claims with be subject to the Indenture Trustee’s Charging Lien in the event of any unpaid Indenture Trustee Expenses, in accordance with the Plan. A summary of the material provisions of the New Noteholder Common Stock, the New Management Incentive Plan and the Majority New Notes is contained in Appendix B.
Noteholder Claims are Impaired. The holders of such Claims are entitled to vote on the Plan.
Estimated Percentage Recovery: 39% for Cash and Majority New Notes only; recovery for New Noteholder Common Stock is highly speculative and not quantifiable."
USEC filed Chapter 11 this morning.
USEC Inc. (USU) announced today that it is implementing the agreement reached with a majority of the holders of its senior unsecured convertible notes that was announced in December 2013. This agreement sets forth the terms of a financial restructuring plan to strengthen the company’s balance sheet, enhance its ability to sponsor the American Centrifuge project and improve its long-term business opportunities. The company also announced today that it reached agreement with its preferred equity investors, Toshiba Corporation and The Babcock & Wilcox Company, to support the restructuring plan.The petition is available at the case administrator website.
In order to implement the agreement, USEC today filed a voluntary petition and a plan of reorganization under Chapter 11 of the bankruptcy code in the U.S. Bankruptcy Court for the District of Delaware. USEC anticipates receiving Court approval for its prearranged plan of reorganization and emerging from Chapter 11 in 90 to 120 days. None of USEC’s subsidiaries, including its primary operating subsidiary the United States Enrichment Corporation, have filed for bankruptcy protection.
The Company had positive cash flow from operations in 2013 and ended the year with a cash balance of $314 million. During the restructuring process, USEC’s subsidiary, the United States Enrichment Corporation, will provide debtor-in-possession (DIP) financing to USEC that will support continued operations. No third-party DIP financing will be required. After meeting its significant payables in the first quarter, the Company anticipates a cash balance of at least $60 million at March 31, 2014.
This filing has no impact on USEC’s daily operations, which includes the company’s efforts to deploy the American Centrifuge uranium enrichment technology and perform the research, development and demonstration program partially funded by the U.S. Department of Energy. As a non-debtor, United States Enrichment Corporation’s operations, which include the transition of the Paducah Gaseous Diffusion Plant back to the U.S. Department of Energy (DOE) and the sale of SWU from its inventory and purchases of Russian low enriched uranium, continue unaffected.
“By addressing the October 2014 maturity of the convertible notes, USEC will be able to pursue its ongoing business objectives with greater certainty,” said John K. Welch, USEC president and chief executive officer. “The restructuring will strengthen USEC’s balance sheet and enhance the company’s ability to sponsor the American Centrifuge project. Throughout this process our operations will continue. We will continue to make customer deliveries, execute the RD&D program and continue progress on transitioning the Paducah GDP.”
The plan of reorganization, which is supported by those holding approximately 65 percent of USEC’s debt, as well as Toshiba and Babcock & Wilcox, calls for replacing USEC’s $530 million debt and all of its preferred and common stock with a new debt issue totaling $240.4 million and new common stock. The new debt issue would mature in five years and can be extended for an additional five years subject to certain conditions. The noteholders would receive $200 million of the new debt and approximately 79 percent of the common stock, Toshiba and Babcock & Wilcox would each receive $20.19 million of the new debt and approximately 8 percent of the new common stock. Existing stockholders would receive 5 percent of the new common stock. USEC’s board of directors and management team are substantial holders of the common stock and their holdings will be treated exactly as all other common shareholders. In addition, any unvested or unexercised stock awards they hold will be forfeited under the plan.
USEC issued the original notes in 2007 at a time when the nuclear power industry was expected to grow significantly and the American Centrifuge Plant was expected to be completed and producing operating cash flow before the notes matured. In addition, USEC, Toshiba and Babcock & Wilcox entered into an agreement in 2010 for a phased preferred equity investment to strengthen the Company’s financial position for deployment of the American Centrifuge technology. The company’s deployment plans for the American Centrifuge Plant have been affected by delays in obtaining permanent financing for construction and by a global oversupply of nuclear fuel following a devastating tsunami in Japan that resulted in extensive damage to reactors at Fukushima in 2011. More than 50 nuclear power reactors in Japan and Germany were shut down. The resulting oversupply caused nuclear fuel prices to drop to their lowest levels in a decade, which has negatively affected the economics of deploying the American Centrifuge technology in the near term. Other factors that have affected the Company’s deployment plans include increases in the cost of several key commodities, and changes and additions to project scope and schedule.
The current USEC board of directors will oversee the restructuring process until the effective date of the plan when a new board would take its place. B&W and Toshiba each retain the right to representation on the board of directors.
The restructuring plan support agreements entered into by Toshiba and Babcock & Wilcox and other materials related to the filing can be found in an 8-K filed today with the Securities and Exchange Commission and is available in the Investors section of the company’s website, www.usec.com. In addition, documents related to the Chapter 11 filing are available at www.loganandco.com.
In connection with the bankruptcy filing, USEC’s board of directors also approved the termination of the company’s tax benefit preservation plan, which was originally scheduled to expire on September 29, 2014. The plan has been amended to accelerate the expiration date to March 4, 2014, effectively terminating the plan as of that date.
USEC expects to issue its fourth quarter 2013 earnings and its Annual Report on Form 10-K in late March. During the period its case is pending in Bankruptcy Court, USEC will not hold quarterly telephonic conference calls with investors.
USEC has informed and discussed the Chapter 11 filing with the New York Stock Exchange. The Company’s most recent quarterly update on its plan of compliance to meet the Exchange’s continued listing standards was accepted and the stock has traded since the Company’s December 16 announcement that it had reached a restructuring agreement. The NYSE will continue to monitor the Company under its continued listing standards throughout the Chapter 11 process.
USEC’s legal advisor for the restructuring is Latham & Watkins LLP, its financial advisor is Lazard, and its restructuring advisor is Alix Partners LLP. An ad hoc group of holders of USEC's senior convertible notes is advised by Akin Gump Strauss Hauer & Feld LLP and Houlihan Lokey.
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