Thursday, February 11, 2016

"Peabody Energy Announces Results For The Year Ended December 31, 2015" $BTU


  • "As of Feb. 9, 2016, liquidity totaled $902.6 million, which consisted of $778.5 million in cash, $123.0 million available under the company's accounts receivable securitization and the remainder under the revolving credit facility."
  • "Peabody and its advisors are currently in discussions with debt holders to evaluate financial alternatives, including potential debt exchanges, debt buybacks and new financing, to preserve liquidity and delever the balance sheet."
  • "The company's final PRB reserve installment of approximately $250 million is scheduled to be paid in the second half of 2016."
  • Capital Expenditures [2016 guidance]: $120 – $140 million

Beethoven - Piano Sonata No. 14 (Moonlight Sonata)

Wednesday, February 10, 2016

High Plateau Drifter rides again!

The latest from High Plateau Drifter (most recently):

OK, help me understand how negative interest rates will spur growth.

Anyone with bank deposits will see those deposits shrink. Thus only those who are risk averse, desperate to avoid losses and unable to find non-confiscatory alternatives will hold deposits. Over the long run the falling deposit volumes will contract the monetary base, which in turn will slow the growth of M-2 over the longer term.

NIRP is a transparent attempt to provide an extra profit margin for banks holding needed transaction balances at a penalty rate while placing those balances in reserves with the Fed at a positive rate. Penalize transaction balances and you get fewer transactions. It is a subsidy legislated by a government agency which lacks legislative powers, and a subsidy or income stream that provides an incentive for banks to sit on the deposits rather than lending them out to productive enterprises. Of course, NIRP is driven by falling yields on Fed assets like interest sensitive treasury notes and junky mortgages which make payment for bank reserves at fixed rates parked at the Fed more risky.

This is deflationary.

For proof of quick trouble, I submit the chart of the US dollar after a few Fed heads began talking about the mere possibility of NIRP.

If the most important mission of the Fed is to defend the value of the dollar so that foreign countries will hold their reserves in dollar denominated instruments, it would appear that all this chatter about NIRP is causing world wide capital to flee the dollar. And, surprise, surprise, we are beginning to see the first signs of strength in gold and silver.

This will end badly, very badly.
Note that the "High Plateau" ain't lookin' so high, anymore!

Previously by High Plateau Drifter: Skeptics to the Ramparts, Fun on the Permanently High Plateau, Surfing the zero bound along the permanently high plateau, and Back To The Future!

Sunday, January 31, 2016

High Plateau Drifter is Long Oil, Short Facebook

Somehow, correspondent High Plateau Drifter was inspired to write two pieces in January. Here is the latest:

OK, so we have begun to hear hints from oil producers including especially Russia and Saudi Arabia, Iran, Iraq and Syria - unlikely allies to be sure - that they should come to some kind of agreement on production quotas. What the market seems to forget is that the demand for oil and energy is remarkably inelastic relative to say, new motorcycles or new granite counter tops, for example.

Energy use is surprising stable even in recessions. What inelasticity of demand means is that oil producers could cut production by perhaps 6 percent and increase sales income by 30% to 50% from current levels on lower volume of exports. Thus, reaching an accord on production is an absolute no brainer for the producing states.

Now the big dissenter at present is Iran, which, due to past sanctions has had what it believes to be far less than its fair share of the market. It is not willing to decrease production but will demand an increase in production. But then the Iranians are not fools, they understand inelasticity of demand. They are not going to want to export oil at $25 per barrel. So the real issue here is how much of a production increase is Iran going to demand and what will it take to get the other big exporters, dependent upon oil revenue, to decrease their production

As investors who are not in on the ongoing talks and not privy to the precise calculations of the players, the question is not if but when they agree, behind the scenes, to cut production while giving Iran an increased quota. And of course the truth is that these other players will get a better deal while Iran's welfare and other costs are relatively low due to budget constraints imposed by past sanctions rather than to wait until their expenses of legitimizing rule of the regime (pace Joseph Tainter) have risen to the Saudi level.

Bottom line, we will have $80 oil sooner than most investors think.

OK, now on to my favorite, FB.

What we saw with the latest earnings report and ad revenue numbers is exactly what you would expect when the bazillion social media and tech startups see that funding is drying up – a blast of desperate ad spending as the end of easy VC money comes clearly into view. I am expecting next quarter's ad revenues to be up but for the growth rate to slow. I will be modestly short ahead of FB's Q2 report, and increasing that short quickly if FB stalls out.

Keep your eye on the Tech Crunch Bubble Index going forward.
Previously by Skeptics to the Ramparts, Fun on the Permanently High Plateau, Surfing the zero bound along the permanently high plateau, and Back To The Future!

Thursday, January 28, 2016

Arch Coal Restructuring Milestones in DIP Agreement $ACI $ACIIQ

The following milestones are in the DIP agreement recently filed by Arch:

Each of the following milestones (the "Milestones") are included in the DIP Credit Agreement, and any failure to comply with these Milestones will constitute an event of default:
  • No later than five (5) days after the Petition Date, entry of the Interim Order;
  • No later than forty-five (45) days after the Petition Date, entry of a final order approving the DIP Facility (the "Final Order");
  • No later than sixty (60) days after the Petition Date, delivery of an updated business plan that is reasonably acceptable to the Required DIP Lenders;
  • No later than ninety (90) days after the Petition Date, filing of a Plan of Reorganization and accompanying disclosure statement;
  • No later than sixty (60) days after the date of the filing of the Plan of Reorganization described in the immediately preceding clause, entry of an order approving a disclosure statement for the solicitation of the Plan of Reorganization;
  • No later than ninety (90) days after the entry of the order approving a disclosure statement for the solicitation of the plan of reorganization described in the immediately preceding clause, entry of an order confirming the Plan of Reorganization; and
  • No later than fifteen (15) days after the entry of the order confirming the plan of reorganization described in the immediately preceding clause, effectiveness of the Plan of Reorganization.
So, that would mean an effective date of January 11 + 90 days + 60 days + 90 days + 15 days = September 22, 2016 (assuming that it doesn't get extended, of course).

"Goodrich Petroleum Announces Unsecured Notes And Preferred Stock Exchange Offers" $GDP $GDPM

Goodrich Petroleum announced yesterday:

Goodrich Petroleum Corporation today announced that it has commenced offers to exchange newly issued shares of common stock, par value $0.20 per share, for any and all of its Existing Unsecured Notes and for any and all shares of its Existing Preferred Stock. The Company has also announced it intends to offer to exchange its Second Lien Notes into new second lien notes with materially identical terms except that interest thereon may be paid either (a) at the Company's option in cash or in-kind or (b) deferred until maturity. The Second Lien Notes Exchange Offers, together with the Unsecured Notes Exchange Offers and the Preferred Exchange Offers collectively referred to as the "Exchange Offers" and the "Recapitalization Plan". [...]

If successful with the above referenced Existing Unsecured Notes Exchange and Second Lien Notes Exchange, the Company would eliminate between $213 million and $224.2 million in unsecured senior indebtedness with respect to the exchange and cancellation of Existing Unsecured Notes in the Exchange Offers, and $29.8 million to $31.4 million in cash interest payment obligations per year, thereby preserving liquidity in the near term. [...]

The Company is conducting the Exchange Offers in response to the current low commodity price environment that has had a significant, adverse impact on the Company. While the Company is not currently in default under its existing debt instruments, its ability to make the March 2016 interest payments on its 8.00% Second Lien Senior Secured Notes due 2018 and 8.875% Senior Notes due 2019 and service its other debt and fund its operations is at significant risk as a result of the sustained continuation of the current commodity price environment. If the Company is unable to complete the Recapitalization Plan, including the Exchange Offers, and address its near-term liquidity needs, it may need to seek relief under the U.S. Bankruptcy Code. This relief may include: (i) seeking bankruptcy court approval for the sale or sales of some, most or substantially all of the Company's assets pursuant to section 363(b) of the U.S. Bankruptcy Code and a subsequent liquidation of the remaining assets in the bankruptcy case; (ii) pursuing a plan of reorganization (where votes for the plan may be solicited from certain classes of creditors prior to a bankruptcy filing) that the Company would seek to confirm (or "cram down") despite any classes of creditors who reject or are deemed to have rejected such plan; or (iii) seeking another form of bankruptcy relief, all of which involve uncertainties, potential delays and litigation risks.
It looks like this would give 184 million shares to unsecured noteholders. The company currently has 61 million shares outstanding.

Wednesday, January 27, 2016

Book Suggestions

A correspondent writes,

You should read Structural Holes together with Design in Nature.

Design in Nature is about dispersion of something from a point to an area and concentration of something from an area to a point.

Structural Holes is about creating structural barriers to dispersion or concentration of information or other resources, such as by censorship.