Friday, May 26, 2017

Seadrill Bond Traded at 33 Cents

The Seadrill bond that's due in September traded at 33 cents today.

Comment from the earnings call this week:

"In April, we reached agreement with our bank group to extend the restructuring plan negotiating period until the 31st of July, reflecting significant progress made. We are currently in advance discussions with third parties and related party investors and our secured lenders on the terms of the comprehensive recapitalization.

We've received a new money proposal from third-party and related party investors, which remains subject to further negotiation, final due diligence and documentation. We are also in discussions with certain bondholders who have recently become restricted again. I appreciate you're all interested to understand more details on the restructuring, but at this stage, it would be inappropriate for us to comment on specifics. As you're aware, this is a large and complex transaction with multiple parties involved.

While discussions with our secured lenders and certain investors have advanced significantly, a number of important terms continue to be negotiated. And until such time an agreement is reached, no assurances can be given.

We continue to believe that implementation of a comprehensive restructuring plan will likely involve schemes of arrangement for Chapter 11 proceedings. It is likely that the comprehensive restructuring plan will require substantial impairment or conversion of our bonds as well as impairment and losses for other stakeholders. As a result, we currently expect that shareholders are likely to receive minimal recovery for their existing shares."

The Bon-Ton Stores, Inc. (BONT)

Jenna Loren Giannelli, Citigroup Inc, Research Division - Director and High Yield Credit Retail Analyst
Okay. And then just one final one. I know you affirmed the guidance for the debt repayment of $20 million to $30 million this year. Are you anticipating that to just be sort of regular way debt repayment, or would you anticipate the possibility of maybe buying back -- bonds back in the open market, given your liquidity position?

Nancy A. Walsh, The Bon-Ton Stores, Inc. - CFO and EVP
At this point, we are not contemplating any repurchase of the debt. I think we really need to focus on the business and make sure we maintain our liquidity to support the business. But we continue to evaluate other, say, lease-back transactions and things that might add additional cash for us. But at this point, this is really coming out of the operations.
BONT has an 8% note due June 2021 that is trading in the low 40s - a yield to maturity of ~37%.

Monday, May 15, 2017

Low Marginal Cost Onshore Shale - Bad For Seadrill!

Fortune article about Warwick Energy:

“In the Scoop and the Stack, we can break even $30 oil, and 20%-60% returns at between $40 and $50,” says Richard. Indeed, it’s the fast growth of such low-cost areas that’s counterbalancing the declines in expensive parts of areas such as the Bakken and Texas’s Eagle Ford, and igniting a resurgence in shale production. For example, the rig count for horizontal drilling in the Scoop and Stack has risen by 49% since July of 2014, when prices hovered around $90. It’s a similar story in the best portions of the Permian in Texas and New Mexico. In the Permian’s Midland and Delaware Basins—areas providing returns approaching those of the Scoop and Stack where Warwick is also an active buyer—17% more rigs are at work today than at the peak of 2014.

In April, U.S. shale production rose by an impressive 109,000 barrels per day over March. That bump lifted output to almost 5 million barrels, just 10% below the all-time high of 5.5 million. And if the trend continues, shale production could reach 6 million barrels by early 2018. Of course, that’s far from certain, especially given the recent slide in prices.

Still, Richard spotlights three trends that should keep U.S. shale thriving. First, the industry has become far more efficient. Producers have substantially lowered corporate overhead and obtained deep discounts on both new leases and rates paid to contractors who do everything from supply pipe to sinking the wells.

Second, low prices have produced a gusher of creativity. “Shale is really a play on oil patch ingenuity,” Richard says. “The downturn has been a boot camp for the industry.” Shale producers are relentlessly experimenting with new ways to extract more and more oil at lower cost. “They’re improving the use of sand and ceramics,” she says. “They’re designing different wells to fit different geologies more than ever before. And they’re finding ways to extend the length of the horizontal wells up to two miles to get more oil from the same well.”
How can offshore oil compete?? Seadrill has a big bond maturity coming up in September, and the bond is trading at 36 cents.

Thursday, May 11, 2017

"I attended the top of the Canadian Housing Market, so you didn't have to"

Amazing, read the whole thing:

"Originally, I thought this would be a bit of a joke. There were billboards in all the Toronto subway cars advertising the Canadian Real Estate Wealth Expo - learn how to become a millionaire. I thought this was so ridiculous, it may be fun. What better way to experience the top of the housing market than watching Tony Robbins and Pitbull along with a bunch of US real estate professionals explain how Toronto real estate is the path to riches.

Prices were originally $150 per ticket, but I was able to buy for $50. While it deeply bothers me that I paid $50 to these shameless (amoral) self-promoters, I thought it would be worth it to witness, in person, the top of the housing market.

I had thought, there can’t be that many people stupid enough to attend this, but I was very wrong - 15,000 people were there! I was blown away. Bubbles are largely psychological. This crowd was tangible proof of that. 15k people in one spot listening to Americans explain why real estate in Toronto is an exceptional investment. The whole experience was horrifying. The crowd was very well-dressed, middle- to upper-middle class (from appearances), and super excited to hear how much money could be made if you just buy real estate (most of them clearly already owned)."
Followup posts about Canadian lenders and then HCG blowing up.

Monday, May 8, 2017

High Plateau Drifter - May 8, 2017

Help me out! So here we have the Swiss National Bank acquiring 63.4 Billions in US stocks.

But what in the world is a national bank going to do with common stocks? We know that purchasing corporate stocks will tend to prop up stock prices. So what happens when they stop buying? Are they going to sell them at some point and thus depress stock prices?

And how is the purchase of corporate stock by a national bank any different than a government financed stock buy back? Does it benefit anyone other than the shareholders of that corporation? Where is the public or governmental benefit in such a transaction?

As we all know, when a central bank issues new currency to purchase sovereign debt, the debt is kept on the central bank's books as a fig leaf to cover the genital warts of otherwise naked money printing. Of course we also know that a central bank with the power to create new money could simply cancel the sovereign debt it has purchased at any time, relieving the government of any obligation of repayment, and without material consequence to its mission, other than the inflationary optics created by removal of the fig leaf in proportion to the amount of the sovereign debt cancelled.

Is the Swiss National Bank going to vote these shares? Elect directors? The U.S. Federal Reserve is prevented by law from purchasing stock of private corporations. Is the Swiss National Bank making these purchases at the request of and for the benefit of the U.S. Fed?

And once the crack cocaine of Central Bank money printing is used for propping up stock prices, won't the bear market which follows when the printing stops be that much worse?
Remember how central banks sold gold at the lows 15-20 years ago? Won't it be perfect if they sell these stock portfolios at the next low?

Sunday, May 7, 2017

SSC Review of The Hungry Brain

I thought this was really interesting from SSC's review of The Hungry Brain (which I have not read):

In 1965, some scientists locked people in a room where they could only eat nutrient sludge dispensed from a machine. Even though the volunteers had no idea how many calories the nutrient sludge was, they ate exactly enough to maintain their normal weight, proving the existence of a “sixth sense” for food caloric content. Next, they locked morbidly obese people in the same room. They ended up eating only tiny amounts of the nutrient sludge, one or two hundred calories a day, without feeling any hunger. This proved that their bodies “wanted” to lose the excess weight and preferred to simply live off stored fat once removed from the overly-rewarding food environment. After six months on the sludge, a man who weighed 400 lbs at the start of the experiment was down to 200, without consciously trying to reduce his weight.
I've written in the past about low carb [1,2,3], which I think is the way to go. But some people claim to have good weight loss results (though not necessarily good health results overall) with diets that aren't low carb, or are even high carb - such as eating only potatoes. If this works, even just for some people, a good explanation of the mechanism is that monotonous diets are also effective for weight loss.

Thursday, April 27, 2017

Seadrill Warnings $SDRL

From the new Form 20-F:

We are in ongoing comprehensive restructuring negotiations, which create significant uncertainty, which may result in impairment, losses or substantial dilution for stakeholders and which will likely involve schemes of arrangement in the United Kingdom or Bermuda or proceedings under Chapter 11 of Title 11 of the United States Code.

Over the past year we have been engaged in extensive discussions with our secured lenders and potential new money investors regarding the terms of a comprehensive restructuring. These discussions have also included an ad hoc committee of bondholders.

The key goals of our restructuring continue to be building a bridge to a recovery and achieving a sustainable capital structure. We currently believe that material additional amendments to the terms of our credit facilities will be necessary to effectuate a comprehensive restructuring. Feedback from certain stakeholders and potential new money providers also indicates that a comprehensive and consensual agreement will likely require a substantial impairment or conversion of our bonds to equity, as well as impairment, losses or substantial dilution for other stakeholders. As a result, we currently expect that shareholders are likely to receive minimal recovery for their existing shares.

We have agreed to amendments to our secured credit facilities as one component of the broader effort to effectuate a comprehensive restructuring of our indebtedness. On April 28, 2016, we entered into agreements with our banking group to amend the financial covenants on all of our secured credit facilities. The amendments also included a milestone to implement a comprehensive restructuring, which was originally April 30, 2017. On April 4, 2017, we reached an agreement to further extend the covenant amendments and waivers to our secured credit facilities and extend the milestone to implement a comprehensive restructuring plan from April 30, 2017 to July 31, 2017. Failure to meet or extend this milestone may result in events of default under our credit facilities and other funded debt. These amendments also involved corresponding extensions of the maturities on certain secured credit facilities.

We expect the implementation of a comprehensive restructuring plan will likely involve schemes of arrangement in the United Kingdom or Bermuda or proceedings under Chapter 11 of Title 11 of the United States Code. We are preparing accordingly and have retained financial advisers and legal counsel. There is inherent uncertainty in the completion of this comprehensive restructuring process, and therefore we are also preparing various contingency plans in the event a consensual agreement is not reached. Commencement of schemes of arrangement or proceedings under Chapter 11 of Title 11 of the United States Code could result in defaults on the funded debt of entities in which we hold noncontrolling interests, including Seadrill Partners, Archer, Seabras Sapura, and SeaMex, which could impair the value of our investments in those entities.

The outcome of these comprehensive restructuring negotiations and contingency planning efforts is uncertain and could adversely effect our business and result in impairment, losses or substantial dilution for stakeholders, and may impair our ability to continue as a going concern.

We may not have sufficient liquidity to meet our obligations as they fall due or have the ability to raise new capital or refinance existing facilities on acceptable terms.

As at December 31, 2016, we had $9.9 billion in principal amount of interest-bearing debt (including related party debt of $0.3 billion), representing approximately 576% of our total market capitalization, of which $7.3 billion was secured by, among other things, liens on our drilling units. Our current indebtedness and future indebtedness that we may incur could affect our future operations, since a portion of our cash flow from operations will be dedicated to the payment of interest and principal on such debt and will not be available for other purposes. Covenants contained in our debt agreements require us to meet certain financial tests and non-financial tests, which may affect our flexibility in planning for, and reacting to, changes in our business or economic conditions, may limit our ability to dispose of assets or place restrictions on the use of proceeds from such dispositions, withstand current or future economic or industry downturns, and compete with others in our industry for strategic opportunities, and may limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate and other purposes.