Monday, November 13, 2017

CIE Conference Call


All discretionary spend is being eliminated. We have interest payments due in our bonds in November and December that we are mindful of. Given this, we felt it appropriate to engage these advisers to assist us in analyzing all of our alternatives, including a restructuring or reorganization under Chapter 11 of the Bankruptcy Code. As part of Houlihan's engagement, they have recently initiated constructive conversations with our bondholders. That dialogue continues.
YTM on bonds is now 180%.

Friday, November 10, 2017

Early November Links

  • In the seven decades he was at M.I.T., Professor Forrester retained an engineer's curiosity about how things work, and occasionally voiced dismay that his students were not always so inclined. He recalled in 2011 that he once asked students in an engineering class if they understood how the feedback mechanism in a toilet's water tank maintained the water level. "I asked them, 'How many of you have ever taken the lid off a toilet tank to see how it works?'" he recalled. "None of them had. How do you get to M.I.T. without having ever looked inside a toilet tank?" [NYT]
  • The man who designed the Pringles potato crisp packaging system was so proud of his accomplishment that a portion of his ashes has been buried in one of the tall, circular cans. Fredric J Baur, of Cincinnati, died May 4 at Vitas Hospice in Cincinnati, his family said. He was 89. [link]
  • The Pringles company once stated that potato content of their chips was so low that they are technically not even potato chips. The statement was made in order to avoid taxes typically placed upon traditional potato chip makers [link]
  • It is Glass's first and longest opera score, taking approximately five hours in full performance without intermission; given the length, the audience is permitted to enter and leave as desired. [wiki]
  • The Pittsburgh investor kept a low profile, he explained, because "the whale gets harpooned only when it spouts." He wasn't fond of the Forbes wealth rankings and dubbed them "The Kidnapper's Handbook" [WSJ]
  • [Trump] was such a notorious liar that a friend of his once said of him, "he'd lie to you about what time of day it is, just for the practice." [GQ]
  • My goal is simple: manipulate my biochemistry to get more of the things I want, and less of the things I do not want. [link]
  • The idea that there is a court in the United States of America that has not even a mailing address is absolutely astounding. But upon further research, "the FISC" appears not to actually exist, at least as a physical court room. The idea that in order to reach the judicial branch, I must ask the executive branch to process my request is antithetical to the separation of powers required by our constitution. But, this whole deal -- the spying, the secret courts, the lying to us to "protect us" -- it's all antithetical to our values, isn't it? [link]
  • For $5 million in testing, they might be able to save $50 million (or even $500 million) in advertising. (G&Z currently spends about $7 billion per year on advertising in total.) This logic seemed unassailable to me. But my contacts at G&Z explained that no brand manager had ever gotten promoted by cutting his ad budget. G&Z believed in advertising. To consider reducing commercials was heresy. In short, Americans like to advertise. [Taki]
  • How was the immigration of Sayfullo Habibullaevic Saipov supposed to benefit native-born Americans? [Greenspun]
  • After raising $153 million in a matter of hours in June, the Tel Aviv, Israel-based startup -- whose market maker-like application aims to facilitate trading in other digital coins -- has seen the price of its token decline 56 percent, one of the worst performances among the 10 largest crowd-funding sales. [Bloomberg]
  • Appcoins are a terrible idea. And furthermore, this shouldn't require such a deep analysis to realize. They are clearly just a needless complexity. Why would I want to use different money for my gas, food, and rent? This defeats the whole purpose of having a money economy. How can these appcoin proponents think they're accomplishing something with that? It's like they're trying to invent a barter system again except improve it by adding trade barriers and a bunch of imaginary extra goods that aren't useful for anything but that people are required to trade with for some reason. In fact, it's not like that. It's exactly what they're actually doing. Appcoins are pump-and-dump scams disguised as Rube Goldberg machines, so don't get fooled. [link]
  • Mr. Lampert keeps his own counsel. He doesn’t go to Sears headquarters more than a couple of times a year, people who have worked with him say. Instead, executives make quarterly treks to Florida, where Mr. Lampert lives on the exclusive Indian Creek Island in a $42 million home. [WSJ]
  • Whether or not you think there’s anything wrong with having a type and rejecting people who aren’t your type, as Thomas Ptacek has observed, if your type is the same type everyone else is competing for, "you are competing for talent with the wealthiest (or most overfunded) tech companies in the market". [link]
  • By running an outreach program that attracts people who are interested in crypto, and building an interview process that doesn't care what your resume says or how slick you are in an interview. [YC]
  • Ingredients: Unbleached Enriched Flour (Wheat Flour, Niacin, Reduced Iron, Thiamine Mononitrate {Vitamin B1}, Riboflavin {Vitamin B2}, Folic Acid), Soybean Oil, Partially Hydrogenated Cottonseed Oil, Sea Salt, Salt, Malted Barley Flour, Baking Soda, Yeast. [link]
  • As it happens, iodine is a silver bullet. Since then, it has become a victim of its own success: iodization is long-since forgotten and boring so now marketing and trendiness has moved towards ‘Himalayan rock sea salt’ (with minimal iodine content and certainly not supplemented, that would be unnatural) so ‘live by the sword, die by the sword’; people have been trying to minimize salt intake and have been moving to upscale food which is fresh or makes a point of using ‘sea salt’, so they’re not getting much iodine there; and the importance has largely been forgotten (when was the last time you saw someone with a goiter? in France or Switzerland or China, there used to be whole villages of cretins), so while iodine hasn’t experienced the perverse backlash & defections of the anti-vaxxers it is generally ignored – women might know they should look into iron supplements, but even pregnant women (where iodine sufficiency is by far the most important, post-natal supplementation of iodine is much less useful) don’t make it a top priority to get a lot of iodine. Hence, population surveys indicate lots of people are iodine-insufficient even in the US or UK where the problem should’ve been permanently solved a century ago. [WH]
  • Lithium drinks were in huge demand for their reputed health-giving properties, so much so that the element was added to commercial drinks. 7-Up was originally called Bib-Label Lithiated Lemon-Lime Soda and contained lithium citrate right up until 1950. In fact, it’s been suggested that the 7 in 7-Up refers to the atomic mass of the lithium. (Maybe the “Up” referred to mood?) Even beer made with lithia water was available. [NYT]
  • This past week, the next chapter in this crypto-tragedy may have been written. Filed with the Superior Court of the State of California, Plaintiff Andrew Baker, represented by Taylor-Copeland Law in San Diego, California, filed for a class action lawsuit against the Breitmans, Gevers, Strange Brew Strategies (a PR Firm), Dynamic Ledger Solutions, Inc, and the Tezos Foundation. [link]
  • Elite overproduction leads to the creation of counterelites, who are the failed aspirants to elite positions. These dissident elites desire nothing more than to bring down the system that has no place for them. This ties in with Colinvaux's (and others) observation that revolutions come from the ranks of the disaffected upwardly mobile classes whose aspirations are thwarted, rather than from the bottom strata who are accustomed to lower living standards. [link]
  • We observed inverse genetic correlations of grip strength with cardiometabolic traits, and positive correlation with parents' age of death and education; and showed that grip strength was causally related to fitness, physical activity and other indicators of frailty, including cognitive performance scores. [link]
  • Whatever happiness is, one will find it's fairly consistent, easily reliably measured by simple survey questions, longitudinally stable, genetically heritable, and there are now polygenic scores to allow prediction of happiness from SNPs and hence is doable right now as embryo selection. Various measures of happiness/life satisfaction/positive affect/depression/Neuroticism are also genetically correlated (particularly Neuroticism) so the genetics are consistent and you can do GWAS + embryo selection on all those traits (which will work much better than doing them individually). [Gwern]
  • I hope B&N manages to stay open. I've bought something like 120 books over the past two weeks (part of a project to fulltext &, and I've been surprised how bad Amazon's prices for used books are, and how good B&N's marketplace is. Same functionality, you would think, same sellers often, but the B&N prices are often 50% or better. I've bought probably a plurality on B&N (with the remainder coming from a mix of Amazon, Abe Books, Discover Books, and eBay). This sort of illustrates for me the future where Amazon finishes eating all the industries, and, its competition eliminated, turns on the revenue tap to squeeze us as much as possible. (Why else do you think its stock is so high?) [Gwern]
  • As I went through life I watched as another boom and bust cycle played out with the crash of October 1997 and then again in the crash of September 2008. The interesting thing to me is the way different generations interpreted these events. The older folks never adjusted their penny pinching when times were good. They reflexively saved against lean times regardless of the current abundance. Boomers never learned to restrain their enthusiasm no matter how often they screwed up. They held firm to their buy-now-pay-later ethos decade after decade. A dog doesn’t change its spots. [Granola Shotgun]
  • The plan as a whole is a reckless expansion of the deficit, but if that is going to happen anyway this is one of the better ways to do it. In fact, we should tax companies less and homes/land more. Why? First, for behavioral reasons homeowners are insufficiently diversified; the tax code should not encourage that. Second, this bill will (modestly) lower land, home, and rental values in the fancy cities on the coasts, a net gain at least for non-itemizers perhaps (caveat: I don’t know everything that is in the bill). Third, big, fancy homes on big plots of land are not that "green," and furthermore residence size seems to bring a lot of hedonic adaptation. Fourth, there are more likely increasing returns across companies than across expensive homes. Fifth, American equities seem to bring a long-run return of 5-7% and real estate zero percent. More of the former please! Companies > homes. I believe that with further examination I could find many ugly and stupid aspects of this bill, and many politically craven decisions. And again, I don’t favor increasing the debt. But holding the size of the debt constant, let’s face it — this is a step in the right direction. [MR]
  • I experimented with a box of shelf stable UHT cream for the sauce and it worked pretty well. Obviously I prefer fresh cream, but I like having back up options. I like this product well enough to stock up on more since it’s significantly better than the canned milk I’ve always kept in the pantry and a million times better than the powdered milk I keep in the way way back supply. [Granola Shotgun]
  • The libertarian therefore considers one of his prime educational tasks is to spread the demystification and desanctification of the State among its hapless subjects. His task is to demonstrate repeatedly and in depth that not only the emperor but even the “democratic” State has no clothes; that all governments subsist by exploitive rule over the public; and that such rule is the reverse of objective necessity. He strives to show that the very existence of taxation and the State necessarily sets up a class division between the exploiting rulers and the exploited ruled. He seeks to show that the task of the court intellectuals who have always supported the State has ever been to weave mystification in order to induce the public to accept State rule, and that these intellectuals obtain, in return, a share in the power and pelf extracted by the rulers from their deluded subjects. [Rothbard, For a New Liberty]
  • A written constitution certainly has many and considerable advantages; but it is a great mistake to suppose, that the mere insertion of provisions to restrict and limit the powers of the government, without investing those for whose protection they are inserted with the means of enforcing their observance, will be sufficient to prevent the major and dominant party from abusing its powers. Being the party in possession of the government, they will, from the same constitution of man which makes government necessary to protect society, be in favor of the powers granted by the constitution, and opposed to the restrictions intended to limit them. As the major and dominant party, they will have no need of these restrictions for their protection. The ballot box, of itself, would be ample protection to them. Needing no other, they would come, in time, to regard these limitations as unnecessary and improper restraints—and endeavor to elude them, with the view of increasing their power and influence. The minor, or weaker party, on the contrary, would take the opposite direction—and regard them as essential to their protection against the dominant party. And, hence, they would endeavor to defend and enlarge the restrictions, and to limit and contract the powers. But where there are no means by which they could compel the major party to observe the restrictions, the only resort left them would be, a strict construction of the constitution, that is, a construction which would confine these powers to the narrowest limits which the meaning of the words used in the grant would admit. [John C Calhoun]
  • The most important reason for the surge in panda emissaries is President Xi’s emphasis on enhancing Chinese soft power abroad. Xi personally signs off on every panda loan to a foreign country, according to several people with knowledge of the process. But before he decides whether to grant a country pandas or not, China requires the foreign head of state — the queen of Denmark, Angela Merkel herself — to ask for the bears in person. People involved say the convoluted negotiations and personal involvement of a foreign leader remind them of ancient rituals in which Chinese emperors would receive barbarian supplicants. [FT]
  • The clearest example is the Judge Gonzalo Curiel drama. By the rules of the détente, saying a judge cannot fulfill his duties because of his race or nationality counted as a firing offense. Indeed leaders on both the Left and Right assumed Trump could not overcome it. But not only did many white voters break the rule of disqualifying a person based on a racist statement, they broke the second rule too. They began to ask why Trump couldn’t say a Mexican judge might be unfair, when we hear all the time about the danger of all white juries and white police officers. [Federalist]
  • When volatility is low, risk is actually rising because people are more emboldened to take on higher leverage and to move to riskier assets. If volatility is half of what it used to be, why not lever twice as much? Thus the immediate question is what happens if there is a sudden surge in volatility from our current, low level. What is the dynamic through which a volatility shock might propagate across the financial system? [link]
  • Industrial espionage was implicated in the capacitor plague, in connection with the theft of an electrolyte formula. A materials scientist working for Rubycon in Japan left the company, taking the secret water-based electrolyte formula for Rubycon's ZA and ZL series capacitors, and began working for a Chinese company. The scientist then developed a copy of this electrolyte. Then, some staff members who defected from the Chinese company copied an incomplete version of the formula and began to market it to many of the aluminium electrolytic manufacturers in Taiwan, undercutting the prices of the Japanese manufacturers. This incomplete electrolyte lacked important proprietary ingredients which were essential to the long-term stability of the capacitors and was unstable when packaged in a finished aluminum capacitor. This faulty electrolyte allowed the unimpeded formation of hydroxide and produced hydrogen gas. [Wiki]
  • Given their lack of benefit, I estimate we could stop almost all psychotropic drugs without causing harm — by dropping all antidepressants, ADHD drugs, and dementia drugs (as the small effects are probably the result of unblinding bias) and using only a fraction of the antipsychotics and benzodiazepines we currently use. [link]
  • The main reason we take so many drugs is that drug companies don't sell drugs, they sell lies about drugs. This is what makes drugs so different from anything else in life. Virtually everything we know about drugs is what the companies have chosen to tell us and our doctors. The reason patients trust their medicine is that they extrapolate the trust they have in their doctors into the medicines they prescribe. The patients don't realise that, although their doctors may know a lot about diseases and human physiology and psychology, they know very, very little about drugs that hasn't been carefully concocted and dressed up by the drug industry. [Amazon]
  • Canny liberals understand this implicitly; dumb liberals destroy themselves in not understanding. For example, smart liberals know to parrot pro-black canards and racial blank slatism while simultaneously seeking safe, homogenous neighborhoods in which to actually live. This wink-wink has been noted in these pages many times previously as Good Schools. Dumb liberals, in contrast, think the we’re-all-the-same-but-whites-are-worse spiel is serious, and so enroll their children in public ghetto daycares to affirm their alignment with current passcodes. To their shock, only immiseration is the reward. [K]
  • Documents and interviews show Gioia used his government-provided identity to create havoc. He or his companies negotiated deals to build Toby Keith restaurants with mall owners and developers throughout the United States, then took tens of millions of dollars meant to pay for construction and walked away. Gioia’s business associates know him as Frank Capri. No background checks, no amount of vetting, no financial examination and no legal review would have revealed Capri’s record as a confessed murderer, drug dealer, gun runner, arsonist, extortionist, loan shark and leg breaker. That’s because the Witness Protection Program isn’t set up to protect the public. [link]
  • It’s important to recognize just how dependent elevated profit margins are on maintaining permanently depressed wages and salaries, as a share of GDP. The global financial crisis produced high unemployment, massive job losses, and a reluctance of workers to negotiate for higher wages, which combined to produce a steep retreat in the labor share of the economy. The tight relationship between corporate profit margins and the labor share is not nearly as well-recognized (or alternatively, is dismissed by imagining that the FAANG companies – Facebook, Apple, Amazon, Netflix, and Google – represent 100% of the economy, when in fact their combined revenues represent less than 3% of GDP). [Hussman]
  • In the fall of 2016, Harvey Weinstein set out to suppress allegations that he had sexually harassed or assaulted numerous women. He began to hire private security agencies to collect information on the women and the journalists trying to expose the allegations. According to dozens of pages of documents, and seven people directly involved in the effort, the firms that Weinstein hired included Kroll, which is one of the world’s largest corporate-intelligence companies, and Black Cube, an enterprise run largely by former officers of Mossad and other Israeli intelligence agencies. Black Cube, which has branches in Tel Aviv, London, and Paris, offers its clients the skills of operatives "highly experienced and trained in Israel’s elite military and governmental intelligence units," according to its literature. [New Yorker]
  • In loving memory of my father, Lionel Brazile Sr.; my beloved sister, Sheila Brazile; my fearless uncles Nat, Floyd, and Douglas; Harlem's finest, my aunt Lucille; my friend and mentor, David Kaufmann; my DNC colleague and patriot, Seth Rich; and my beloved Pomeranian, Chip Joshua Marvin Brazile (Booty Wipes). I miss y'all. [link]
  • We have seen a lot of enthusiasm from a lot of people about blockchain-based smart contracts, and the general assumption from users is that they would be secure. But just like any other piece of software a smart-contract can be vulnerable. All the recent security issues around smart contracts are challenging more and more the sustainability of storing money on a blockchain-based software layer. [link]
  • Most of San Francisco was built out just before the arrival of the automobile and the shift to suburbia. Shops downstairs. Residential accommodations upstairs. This is how all successful towns were built everywhere until about the 1920s. The streets are a comfortable mix of pedestrians, motor scooters, cyclists, cars, and buses. There’s no need for complex transportation systems because daily needs are all close at hand. This wasn’t an aesthetic choice. It wasn’t something reserved for the rich or forced on the poor. It’s just the thing that made pragmatic sense back in 1885. There’s a huge amount of private taxable value sitting on a very small amount of publicly maintained infrastructure. Inducing an Indian casino, auto dealership, or premium outlet mall to goose the tax base wasn’t necessary. The neighborhood is naturally fuel and energy efficient by passive design. [Granola Shotgun]
  • "What I'd call technical clothing is purpose-built contemporary wearable architecture. I'd definitely rate Outlier as that." [GQ]
  • No civilization should ever announce its presence to the cosmos, he says. Any other civilization that learns of its existence will perceive it as a threat to expand—as all civilizations do, eliminating their competitors until they encounter one with superior technology and are themselves eliminated. This grim cosmic outlook is called "dark-forest theory," because it conceives of every civilization in the universe as a hunter hiding in a moonless woodland, listening for the first rustlings of a rival. [Atlantic]
  • Unlike smaller but better-known neighbors like Fort Myers and Naples, Cape Coral has no colleges, no arenas, no significant corporate offices, no real tourist destinations, only one luxury hotel, a "downtown" with no focal point, and hardly any commercial tax base. Most of the city feels like a gated community without gates. It’s often mocked as Cape Coma. [Politico]
  • "We don’t really have a single America with a moderately high rate of gun deaths. Instead, we have two Americas, one of which has very high rates of gun ownership but very low murder rates, very comparable to the rest of the First World democracies such as those in western & northern Europe, Australia, New Zealand, Canada, Japan, South Korea. The other America has lower rates of gun ownership but much, much higher murder rates, akin to violent third world countries."

Tuesday, November 7, 2017

Cobalt International Energy "Going Concern" Warning

This was in their September 10-Q filing:

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

As of September 30, 2017, we had $547.3 million in cash and cash equivalents, restricted cash, short–term investments and long–term restricted cash and $2,840.8 million in aggregate principal amount of long–term debt outstanding. We have interest payments of $167.0 million due on our outstanding long–term debt in the next twelve months, including an interest payment of $12.3 million due on November 15, 2017 on our 2024 Notes (as described below). In addition, we continue to incur significant net losses, which has caused us to have a stockholders’ deficit of $1,470.4 million as of September 30, 2017.

Although we commenced initial production from our Heidelberg project in January 2016, our ongoing capital and operating expenditures will vastly exceed the revenue we expect to receive from our oil and natural gas operations for the foreseeable future. In order to grow production, we need to develop our discoveries into producing oil and natural gas properties, which will require that we raise substantial additional funding. If we are unable to raise substantial additional funding on a timely basis or on acceptable terms, we may be required to significantly curtail our exploration, appraisal and development activities or sell assets.

In assessing whether there is substantial doubt about our ability to continue as a going concern, we considered our projected cash inflows and outflows as well as any cash related covenants associated with our financing structure. The indentures governing our 10.75% first lien notes due 2021 (the “First Lien Notes”) and our 7.75% second lien notes due 2023 (the “Second Lien Notes” and together with the First Lien Notes, the “Secured Notes”) contain certain covenants including the maintenance of a minimum consolidated cash balance (as defined in such indenture) of at least $200.0 million. If we are unsuccessful in our current marketing efforts with respect to the sale of our Gulf of Mexico assets and do not make or receive any payments to or from Sonangol, we expect our projected cash balance would be out of compliance with the minimum consolidated cash balance covenant during the first quarter of 2018. If the holders of the Secured Notes were to accelerate the indebtedness under the Secured Notes as a result of such default, such acceleration would cause a cross–default or cross–acceleration of all of our other outstanding indebtedness. Such a cross–default or cross–acceleration could have a wider impact on our liquidity than might otherwise arise from a default or acceleration of a single debt instrument. If an event of default occurs, or if other debt agreements cross–default, and the lenders under the affected debt agreements accelerate the maturity of the debt outstanding, we will not have sufficient liquidity to repay all of our outstanding indebtedness. Thus, we have concluded that there is substantial doubt about our ability to continue as a going concern.

On October 10, 2017, we received a notification from the New York Stock Exchange (“NYSE”) that we are no longer in compliance with the continued listing standards because our average global market capitalization had fallen below $50.0 million for 30 consecutive trading days and our stockholders’ equity was less than $50.0 million. If we are unable to maintain compliance with the NYSE listing requirements, our common stock will be delisted from the NYSE, which would constitute a “fundamental change” under the terms of the indentures governing our 2.625% Convertible Senior Notes due 2019 (the “2019 Notes”) and our 3.125% Convertible Senior Notes due 2024 (the “2024 Notes” and together with our 2019 Notes, the “Convertible Notes”). In such case, we could be required to repurchase for cash any such Convertible Notes. A requirement by such holders for us to repurchase some or all of such notes for cash would cause a cross–default or cross–acceleration of all of our other outstanding indebtedness.

Our ability to continue as a going concern is subject to, among other factors, (i) our ability to monetize assets, obtain financing or refinance existing indebtedness and continue our cost cutting efforts; (ii) the production rates achieved from Heidelberg; (iii) oil and natural gas prices; (iv) the number of commercially viable hydrocarbon discoveries made and the quantities of hydrocarbons discovered; (v) the speed and cost with which we can bring such discoveries to production; (vi) whether and to what extent we invest in additional oil leases and concessional licenses; and (vii) the actual cost of exploration, appraisal and development of our prospects.

There can be no assurance that we will be able to obtain additional funding on satisfactory terms or at all. In addition, no assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs and support our growth. If additional funding cannot be obtained on a timely basis and on satisfactory terms, then our operations would be materially negatively impacted. We have engaged Houlihan Lokey, Inc. as financial advisor and Kirkland & Ellis LLP as special legal advisor to advise management and our board of directors regarding potential strategic alternatives to enhance liquidity and address our current capital structure. Such strategic alternatives may include asset sales or liquidity–enhancing transactions that we have commenced previously, as well as restructuring some or all of our debt to preserve cash flow which may include seeking private restructuring or reorganization under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code").

The marketing efforts with respect to our Gulf of Mexico assets continue, but have taken longer than anticipated. If we are unable to sell our Gulf of Mexico assets or the entire company on favorable terms or at all, or enter into an alternative strategic transaction, we may seek bankruptcy protection to continue our efforts to restructure our business and capital structure and may have to liquidate our assets and may receive less than the value at which those assets are carried on our unaudited condensed consolidated financial statements.
Their bond due December 2019 last traded at 10 cents, for a yield to maturity of 162%.

Exco Resources, Inc. "Going Concern" Warning

As part of third quarter results:

The Company's ability to make future interest payments in common shares is subject to a Resale Registration Statement (as defined in the indenture governing the 1.5 Lien Notes or the credit agreement governing the 1.75 Lien Term Loans, as applicable) being declared effective by the SEC, which has not yet occurred. The Company's ability to pay interest in additional indebtedness is limited to $7 million due to limitations on its aggregate secured indebtedness within its debt agreements. EXCO's next quarterly interest payment of approximately $27 million, based on the paid in-kind interest rate of 15.0% on the 1.75 Lien Term Loans, is scheduled to occur on December 20, 2017, and is required to be paid in-kind pursuant to the terms of the indenture governing the 1.5 Lien Notes. Unless the Company amends its debt agreements or obtains a waiver or other forbearance from certain lenders, it will not be able to make its next interest payment on the 1.75 Lien Term Loans on December 20, 2017.

If the Company is unable to comply with the covenants under the Credit Agreement, or is unable to make scheduled interest payments on its debt, there will be an event of default. Any event of default may cause a default or accelerate the Company’s obligations with respect to other indebtedness including the 1.5 Lien Notes, 1.75 Lien Term Loans, 2018 Notes and 2022 Notes. If this occurs and the Company's indebtedness is accelerated and becomes immediately due and payable, its Liquidity would not be sufficient to pay such indebtedness and the Company may be forced to seek protection from creditors under the U.S. Bankruptcy Code.

These factors raise substantial doubt about the Company's ability to continue as a going concern. See further information on the risks related to EXCO’s ability to continue as a going concern in the Company’s periodic filings with the SEC.

The Company, together with the Audit Committee of the Board of Directors, is currently exploring strategic alternatives to strengthen the Company's balance sheet and maximize the value of the Company, which may include, but not be limited to, seeking a comprehensive out-of-court restructuring, or reorganization under Chapter 11 of the U.S. Bankruptcy Code. The Company's plans may include obtaining additional financing or relief from debtholders to support operations throughout the restructuring process, delevering its capital structure, and reducing the financial burden of certain gathering, transportation and other commercial contracts. At the direction of the Audit Committee, the Company has retained PJT Partners LP as financial advisors and Alvarez & Marsal North America, LLC as restructuring advisors. The Company is actively engaged in negotiations with its stakeholders to evaluate the feasibility of a consensual in-court or out-of-court restructuring. The Company continues to retain Kirkland & Ellis LLP as its legal advisor to assist the Audit Committee and management team with the strategic review process. If the Company is unable to restructure its current obligations under its existing outstanding debt, and address near-term liquidity needs, it may need to seek relief under the U.S. Bankruptcy Code.
The bond due September 2018 last traded in the high 20s, yield to maturity of 240%.

Friday, November 3, 2017

Distressed Bond Watch

XCO Sept 2018 maturity - 240% ytm.
CIE Dec 2019 - 153% ytm.
EGLT 2020 - 40% ytm.
BONT 2021 - 43% ytm.

Wednesday, November 1, 2017

November 1, 2017 Links

  • When Adam Neumann pitches potential investors on his startup, WeWork Cos., he likes to rev them up with a jaunt through his company's shared office spaces. Before arriving, the 38-year-old chief executive typically sends staffers a directive: "Activate the space." WeWork’s employees swarm a lounge to host an impromptu party with pizza, ice cream or margaritas. When Mr. Neumann and his guests walk in, he often remarks how the office always seems filled with life, according to several former employees. [WSJ]
  • According to a memoir written by Thomas Hoving, the Met director from 1967 to 1977, when Arthur established the Sackler Gallery at the Metropolitan Museum of Art to house Chinese antiquities, in 1963, he required the museum to collaborate on a byzantine tax-avoidance maneuver. In accordance with the scheme, the museum first sold Arthur a large quantity of ancient artifacts at the deflated 1920s prices for which they had originally been acquired. Arthur then donated back the artifacts at 1960s prices, in the process taking a tax deduction so hefty that it likely exceeded the value of his initial donation. [Esquire]
  • What killed the trees in the ghost forest was saltwater. It had long been assumed that they died slowly, as the sea level around them gradually rose and submerged their roots. But, by 1987, Atwater, who had found in soil layers evidence of sudden land subsidence along the Washington coast, suspected that that was backward—that the trees had died quickly when the ground beneath them plummeted. To find out, he teamed up with Yamaguchi, a specialist in dendrochronology, the study of growth-ring patterns in trees. Yamaguchi took samples of the cedars and found that they had died simultaneously: in tree after tree, the final rings dated to the summer of 1699. Since trees do not grow in the winter, he and Atwater concluded that sometime between August of 1699 and May of 1700 an earthquake had caused the land to drop and killed the cedars. That time frame predated by more than a hundred years the written history of the Pacific Northwest—and so, by rights, the detective story should have ended there. [New Yorker]
  • Asking about blockchain is now a standard question I ask company executives – "In what ways – good or bad – might blockchain impact your business over the next 5-10 years?" It’s not a good sign if they haven’t considered that question yet. [AR]
  • Switzerland is unique among rich countries because its bank notes—from the 10-franc bill all the way to the mighty 1,000-franc bill ($1,025)—lose all of their value 20 years after they are replaced by new ones. The series from the 1970s was replaced in 2000, so their value vanishes in 2020. Franc coins are always usable. It is tough to pinpoint exactly where the one billion in old francs is. Some notes likely vanished naturally, accidentally discarded or lost. Some could be with tourists or workers who left Switzerland with cash and never returned. In recent years, around 30 million to 40 million francs's worth of notes have been exchanged annually. There were still 1.1 billion francs of the 1970s-series notes in 2016. [WSJ]
  • Most people can't follow long chains of economic reasoning. Actually, most people can't follow short chains of economic reasoning. Most people also love to see whatever they own as an investment asset get subsidized by the government. So, gold bugs abandon all traces of free market theory, and they call for more gold purchases by central banks. They don't care which governments buy the gold. As long as governments are buying gold, they rejoice. I do not. Gold is a tool of monetary stability, but only when it is in private hands. It is a tool of production, but only when it is in private hands. Gold is an economic asset, which is why I do not want governments or central banks to have vaults full of gold. [Gary North]
  • Bar none marketing was the single best investment we made. The small iterations of the product just didn’t compare to the return on our marketing investments. I imagine this is the case with most startups. Withstanding some meaningful pivot of an idea, the first iteration of a product delivers the kernel of value that delivers for years to come. Small iterations in the product just deliver marginal returns. [link]
  • Draper told Reuters that cryptocurrencies are commodities like pork bellies, and characterized acquiring Tezzies as a purchase rather than a donation. Asked this month how much he donated during the Tezos fundraiser, he replied via email, "You mean how much I bought? A lot." [Bloomberg]
  • He keeps his courtroom significantly colder than the rest of the building; it's rumored that the air conditioning is cranked up high to keep the jurors awake. If someone coughs in the gallery, Alsup pauses the trial to demand to know who did it. Once the cougher is identified, the judge produces a cough drop — he keeps them by the judge's bench for such eventualities — and the cough drop of shame is passed down through the ranks of attorneys and into the gallery. If the cough persists, the cougher must exit the courtroom, as swiftly and as quietly as possible. [link]
  • More than 8000 men of Japanese ancestry were followed for 28 years with repeat examinations and surveillance for deaths and incident clinical illness. Of 6505 healthy men at baseline, 2524 (39%) died prior to the final exam. Of the 3263 available survivors, 41% remained free of major clinical illnesses, 40% remained free of both physical and cognitive impairment, and 19% remained free of both illness and impairment. The most consistent predictors of healthy aging were low blood pressure, low serum glucose, not smoking cigarettes, and not being obese. Beyond the biological effects of aging, much of the illness and disability in the elderly is related to risk factors present at midlife. [NIH]
  • Everyone involved in maintenance whom we talked to said that Americans coming to classes get less intelligent and less diligent every year. In theory a 20- or even 40-year-old plane can do every mission that a typical new airplane can, but in practice there are fewer and fewer shops with the capacity to keep an old plane airworthy. "In the 1970s if you needed an aircraft to operate reliably in Africa or Latin America you would have to send a new one," said one expert, "because they didn’t have the supply chain and technical capabilities to ensure a high dispatch rate on an old plane. The U.S. is the new Africa." [Greenspun]
  • For tax year 2011 (the most recent year available), an estimated 43 million taxpayers had IRAs with total reported FMV of $5.2 trillion. About 42.4 million (99 percent) of those taxpayers had aggregate IRA balances of $1 million or less, with a median accumulated IRA balance around $34,000. Around 600,000 taxpayers had aggregate IRA balances exceeding $1 million, with a median of around $1.4 million. As shown in table 1 below, few taxpayers had aggregated balances exceeding $5 million as of 2011. A number of taxpayers had IRA balances exceeding $25 million though our estimates varied from around 115 to more than 600 taxpayers. Some of these taxpayers had very large aggregate IRA balances. [GAO]
  • Getting to this modest forest colony is only possible via the Pacific Coast Highway that wiggles its way along the eroding cliffs and treacherous landslides of the California coast for 665 miles. In spots the terrain is relatively flat and well connected to towns and cities from Orange County in the south to Mendocino in the north. But for long long stretches it’s one endless retaining wall with non stop reconstruction. My friends call it the Full Employment for CalDOT Highway. All it does is connect a smattering of remote homes to civilization far far away. Any rational society would let this road fall in to the sea. But so long as the money keeps flowing from the state capital and D.C. it’s a sweet deal for folks with weekend cabins in the sticks. No chip seal here. [Granola Shotgun]
  • When the vast majority of manufacturers reach the end of this process, their polysilicon is as much as 99.999999 percent pure, or '8n' in industry parlance. This means that for every 100 million silicon atoms, there is but a single atom’s worth of impurity... What the Mitsubishi plant in Alabama produces, by contrast, is 11n polysilicon, marred by just one impure atom per every 100 billion silicon atoms. [Greenspun]
  • Coates' extremely hazy conception of the events of the past fifty years, when liberals have largely been in charge of everything race-related, has helped make him vastly popular with liberal whites looking for reasons to blame conservative whites for blacks continuing to screw up. For example, Coates is much appreciated for his assertion that the reason blacks in 2017 have on average saved so little wealth has nothing to do with what has been happening over the past half century since the civil rights revolution, but instead is the direct result of the FDR administration’s redlining in the 1930s. This doesn't make much sense, but few care. White liberal gentrifiers want rationalizations for why blacks should be driven out of potentially valuable inner-city properties and foisted upon suburbs and small towns. To them, Coates' redlining theory is a license to print money. [Taki]
  • Back in my distance running days I could consistently get in the top 5-10% of finishers, but the differences between me and the elites was the difference between me and the bottom 1%. I was a passionate runner. I ran 50+ miles a week. I pushed myself to excel. To excel within the boundaries of the time and life-balance I had set for myself. To achieve elite status would take a life sacrifice that I wasn't willing to make. It would mean running at the expense of all other experiences. [link]
  • Who remembers that, during the Spanish War, the whole Atlantic Coast trembled in fear of the Spaniards’ feeble fleet that all New England had hysterics every time a strange coal-barge was sighted on the sky-line, that the safe-deposit boxes of Boston were emptied and their contents transferred to Worcester, and that the Navy had to organize a patrol to save the coast towns from depopulation? [link]
  • Concerns about B-vitamin supplements and cancer have been percolating for years. They came up quietly in a large trial in Norway that concluded ten years ago. Starting in 1998, researchers assigned 6,837 people with heart disease to take either B vitamins or a placebo. The researchers then watched as people died and contracted diseases in ensuing years—and the vitamin group raised concerns. In 2009, the researchers reported in the Journal of the American Medical Association that taking high doses of vitamin B12 along with folic acid (technically vitamin B9) was associated with greater risk of cancer and all-cause mortality. [Atlantic]
  • Like colorectal cancer, these B vitamins may have a double-edged sword effect on lung cancer by possessing dual modulatory effects that are time and dose dependent. Most people in the United States should have sufficient intakes from diet, particularly for folate, which has been added to foods. Nonetheless, half of the US adult population uses one or more dietary supplements. Our study found that consuming high-dose individual B6 and B12 vitamin supplements over a 10-year period is associated with increased lung cancer risk, especially in male smokers. Consistent with prior evidence of harm for other vitamin supplements on lung cancer risk in smokers, the associations we observed provide evidence that high-dose B6 and B12 supplements should not be taken for lung cancer prevention and, in fact, may increase risk of this disease in men. [JCO]
  • If you are a company that spends millions and millions of dollars on marketing, wouldn’t you be better off handing that money to the customer versus handing it to a third-party who has nothing to do with the future life-time value of the customer? Providing a better value-proposition to the customer is much more likely to endure goodwill than spending on marketing. A heavy marketing spend necessitates a higher margin (to cover the spend), and therefore a higher end user price to the customer! So the customer is negatively impacted by the presence or "need" of the marketing program. Plus, a margin umbrella now exists for competition that chooses to undercut your margin model with a more efficient customer acquisition strategy (such as giving the customer the money). [ATC]
  • The boxer’s endorsement of Centra, along with a similar endorsement from the popular rapper DJ Khaled, lent a patina of credibility to a project that has ended up with more than a few problems, including a chief executive who does not appear to have been a real person and a shaky, fast-shifting business plan. [NYT]
  • According to witnesses, Wieseltier was soon bringing to the office another habit that he also enjoyed outside the workplace: frequent cocaine use. A person familiar with Wieseltier's indulgence estimates that at one point in 1993 he was snorting—from a petite silver spoon, dangling from a chain attached to a vial—an entire gram a day. To support this expensive pastime—all but impossible on his salary, which is in the high five figures—he regularly loaded dozens of books he received as literary editor into the trunk of his Honda Accord and hauled them to Washington bookstores, selling them to finance purchases of "truth serum." [VF]
  • Chinese immigrants, in turn, tended to feel that the Kaplans of America were genetic arrivistes at test prep, compared to the Chinese who had been evolving under the Imperial mandarin exam system of Darwinian selection for high test scores for dozens of generations. The Kaplans and Schumers are soft and do not understand what it is to eat bitter rice. [SS]
  • A genetic study has revealed European-specific mitochondrial DNA at ancient sites throughout Xinjiang Province in China, suggesting that Westerners travelled and settled there during the time of the First Emperor of China, Qin Shi Huang (259 – 210 BC), and even before. In fact, European contact may date back as far as 3,800 years ago, as a number of mummies were found in the Tarim Basin in China with distinctly Caucasian features, and a genetic study in 1993 revealed they had European DNA. [link]
  • On November 9, 2016, Scott Guggenheim, a longtime American adviser to Afghan President Ashraf Ghani, rose early with the sun, got into an armored vehicle and headed across Kabul’s fortified Green Zone to the U.S. Embassy. Afghanistan is 8½ hours ahead of the East Coast of the United States, and the American expatriates, Afghan elites and others who had managed to scare up invitations had gathered in the basement of the embassy—a city block-sized, blast-resistant compound as charmless as it is spotless—to watch the results of the American presidential election. The basement was dominated by State Department employees, who are officially barred from political activism while living abroad but tend to support Democrats; some, anticipating a Hillary Clinton victory, were even calling the occasion a party. On the wall hung a Donald Trump piñata. [Politico]
  • Bezos, for example, owns the Washington Post. Gates founded Slate and MSNBC. Carlos Slim rescued the New York Times. They aren’t getting rich off these investments, of course. But if your goal is to protect your wealth, there are few more direct ways to mold the climate of opinion than to invest in opinion journalism. For example, say you make inordinate profits by squeezing illegal aliens by charging them exorbitant fees for their phone calls to their loved ones in Mexico. And say you married into a genuine Fascist clan. But you’d rather that Americans talked about something else, like how the Russians spent One Hundred Thousand Dollars on Facebook ads. If so, bailing out the New York Times for a few hundred million bucks is a smart investment. [SS]
  • "This is a once-in-a-lifetime opportunity to hear what I would describe as the greatest canon of music for solo instrument by any composer" [link]
  • Amazon won a $600 million cloud computer contract from the CIA. That was the difference – more than the difference. Later that year, Jeff Bezos bought the Washington Post for $250 million. To put that another way, Bezos used less than half the money he got from the CIA to buy the Washington Post. Do you think that was a sweetheart deal? [WND]
  • My name is Richard Bobo and I've been waiting my whole life for two things: a manned mission to Mars, and a subcontrabassoon. Sadly, I am not a rocket scientist, an astronaut, or a trillionaire and Mars remains outside my reach. I am, however, a professional contrabassoonist with a solid understanding of the mathematics and physics of musical instrument design, years of practical experience with machining and computer-aided-design, and (perhaps most importantly) I'm tired of waiting. [link]
  • I am quoting a few lines from "Red Famine," Anne Applebaum's brilliant new history of the deliberate policy of mass starvation inflicted on Ukraine by Joseph Stalin in the early 1930s. An estimated five million or more people perished in just a few years. Walter Duranty, The Times's correspondent in the Soviet Union, insisted the stories of famine were false. He won a Pulitzer Prize in 1932 for reportage the paper later called "completely misleading." [NYT]
  • Dietary added fructose intake (as found in sucrose or high-fructose corn syrup) when consumed in excess is likely a principal driver of NAFLD and its consequences. Considering that the consumption of added sugars has increased from just 4 lb per person per year in the 1700s, to approximately 120 lb per person per year, added fructose-induced NAFLD should be considered a public health crisis [BMJ]
  • A real question future historians will have about our era is how many of the social Lefty pushes were led by people who were constantly high as a kite and/or suffering from mental problems that put them out of touch with reality. [SS]
  • I looked at the tiny monochrome display on the bitcoin wallet and noticed that a countdown timer had appeared. It was making me wait a few seconds before I could try another PIN. My heart fluttered. I went to the hardware wallet manufacturer’s website to learn about the PIN delay and read the bad news: The delay doubled every time a wrong PIN was entered. [Wired]
  • First, our crypto-heroes thought they’d get a generous payout: a large part of the loot (currently around $40 million), plus many Tezzies. They’d worked hard on the blockchain, put 2 or 3 years of time in (while working other jobs for a while) so a large percentage seemed only natural. Second, the fine folks who sent their cash from everywhere in the world thought they’d get magic beans too (though they were told there'd be no guarantee). [link]
  • Unfortunately, due to a self-inflicted wound (Trump is merely a symptom), the US couldn't be in a worse position to counter this effort. Decades of blind adherence to economic and social neoliberalism has shattered US cohesion along all three vectors: moral, mental, and physical. The result has been intractable economic stagnation, social turmoil, and political chaos. [GG]
  • In addition to Americans' strong projection for their outlay on gifts, consumers are exhibiting an unusual willingness to admit that their overall spending will be on par with or higher than a year ago. When asked to say how their expected spending compares with last year, a record-low 16% say they will spend less and 17% say they will spend more. As is typical, the largest share, now 65%, say their spending will be about the same. However, this is the first year since 2000 that roughly equal percentages plan to spend more vs. less. More often, a much higher proportion of consumers have said they plan to spend less rather than more. [Gallup]
  • The takeaway here is simple: people are dramatically less interested in viewing Beatles videos on YouTube. In the past ten years, search volume for The Beatles has tanked more than 50%, according to the data set. [link]
  • We exploit changes in the residential and social environment on campus to identify the economic and academic consequences of fraternity membership at a small Northeastern college. Our estimates suggest that these consequences are large, with fraternity membership lowering student GPA by approximately 0.25 points on the traditional four-point scale, but raising future income by approximately 36% [SSRN]
  • Carter bonds are a series of Treasury bonds issued by the United States in 1978 to prevent a fall of the US Dollar. The name comes from the US President Jimmy Carter. It was enacted under the Exchange Stabilization Fund. In contrast to typical Treasury bonds, which are denominated in US dollars and so do not expose the US Government to currency risk, Carter bonds were denominated in West German Deutschmarks and Swiss Francs. [wiki]
  • "A study of 90 ice-hockey players found that a wider face in which the cheekbone-to-cheekbone distance was unusually large relative to the distance between brow and upper lip was linked in a statistically significant way with the number of penalty minutes a player was given for violent acts" [link]

Thursday, October 26, 2017