Worthless Stock Inefficiency: ATP Oil & Gas Equity ($ATPG)

ATP Oil & Gas equity ($ATPG) is actually up 63 percent since Monday, which was the first day of trading after the bankruptcy filing.

"What about option value of the common shares?," the efficient market theorists cry! Today, the company's secured (second lien) notes hit a new low of 26 cents - a market value of $400 million for $1.5 billion face value of debt.

The company's preferred stock traded at 1.7 cents. They will make over 50x if the equity is worth anything.

ATPG March 2013 $0.50 puts are offered at 34 cents. Assume they will be worth 45 cents after deducting for transaction costs. That is a very high return (~33% for ~6 months) with high expected value.  That is 75 percent annualized.

There shouldn't be 75 percent returns available for things that are pretty certain, like ATPG equity being canceled as part of its restructuring.

Maybe you think the stock won't be cancelled by March 2013. The January 2014 puts are only a few cents more. Those get you a 22 percent return.

What does the Kelly formula say? It says you should have your entire net worth long the ATPG puts, possibly hedged with the preferred or bonds.

Something else cool that you can do is use the expected profits on the put trade to fund purchases of the company's bonds, which seem cheap at 26. It is entirely reasonable to think that they could get 50 cents of value after all is said and done.

ATP Oil & Gas Corporation Notice of Delisting ($ATPG)

This press release just came out,

On August 20, 2012, ATP Oil & Gas Corporation (the "Company") received a letter from The NASDAQ Stock Market ("NASDAQ") notifying the Company that in accordance with Listing Rules 5101, 5110(b), and IM-5101-1, the staff of NASDAQ has determined that the Company's common stock will be delisted from NASDAQ.

The NASDAQ staff reached its decision under NASDAQ Listing Rules 5101, 5110(b), and IM-5101-1 based upon the Company's bankruptcy filing and the associated public interest concerns raised by it, concerns regarding the residual equity interest of the existing listed securities holders and concerns about the Company's ability to sustain compliance with all requirements for continued listing on NASDAQ. The delinquent filing of the Company's Form 10-Q for the period ended June 30, 2012 serves as an additional basis.

Given the continued listing requirements, the early status of the bankruptcy case and the demands the bankruptcy case has posed on the Company's resources, the Company does not plan to appeal the NASDAQ staff's determination to delist the Company's common stock. Accordingly, trading of the Company's common stock will be suspended at the opening of business on August 29, 2012, and a Form 25-NSE will be filed with the Securities and Exchange Commission, which will remove the Company's common stock from listing and registration on NASDAQ.

After the Company's common stock is delisted by NASDAQ, it may trade on the OTC Markets Group Inc. (the "Pink Sheets") or the OTC Bulletin Board ("OTCBB"). The Company's stock will be eligible for trading only on the Pink Sheets unless and until it is eligible for trading on the OTCBB. OTCBB trading may occur only if a market maker applies to quote the Company's common stock; however, a potential market maker's application to quote the Company's common stock on OTCBB will not be cleared until the Company is current in its reporting obligations under the Securities Exchange Act of 1934. There is no assurance that the Company will become current in its reporting obligations, that any market maker will apply to quote the Company's common stock or that the Company's common stock will become eligible to trade on the OTCBB.

Amazing that the stock was up 8 percent today. Great short opportunity.

Companies with Distressed Bonds and Non-Zero Market Caps

Name	Ticker	Market Cap	Coupon	Maturity	Dollar Price	YTM
NETWORK EQUIP TECHNOLOGIES	NWK	32	7.250s	May 2014	35	73
K-V PHARMACEUTICAL	KV-A	68	12s	March 2015	60	35
K-V PHARMACEUTICAL	KV-A	68	2.5s	May 2033	18	16
ATP OIL & GAS CORP	ATPG	378	11.875s	May 2015	75	24
JAMES RIVER COAL CO	JRCC	148	4.5s	Dec 2015	50	27
JAMES RIVER COAL CO	JRCC	148	3.125s	Mar 2018	36.5	23

Pretty similar to the last list. Leaving GMXR and AONE off because we are already talking about those.

Flowing Barrels on ATP Oil & Gas (ATPG)

From my point of view, being long ATP equity is not much more than a bet on oil, and even then it may be a losing bet. All of the company's increased PV-10/standardized cash flow the last 3 yrs is from price revisions, while reserves have stayed flat despite massive spending. Based on the forecasting I've done, there appears to be little FCF to repay debt and indeed significant additional NPIs and ORRIs will be needed to fund cash gaps. Indeed, ATP's deepwater strategy may be 'rolling over.'

Thursday Links

Trade Ideas

• "The case for Vodafone has been valid for a long time but what has changed is that there now is a catalyst for the shares to go higher. Vodadfone announced the details of their greater than $6 billion share repurchase plan. They have structured it similarly to an accelerated repurchase plan in that they cannot back out, and will complete the plan by the end of the year."
• ZH: China Hard Landing Bets Rise As It Now Costs More To Bet On Renminbi Strength Than Weakness
• An examination of the “Profit and Value” strategy

Technology

• Excellent new blog about cleantech VC, this post about the history of semiconductor fabrication.
• Price Trends in Storage vs Bandwidth
• It Is Never, Ever Boring for ATP Oil and Gas Shareholders
• Danish firm plans to implement "vehicle to grid" for electric vehicles.

Unsustainable

• Via Falky, the NYTimes puts "property rights" in sarcastic quotes. What jerks.
• Stumbling, Bumbling, Wee Benny Bernanke Transcript
• Businessweek: "Myspace's fate may not be an anomaly. It turns out that fast-moving technology, fickle user behavior, and swirling public perception are an extremely volatile mix. Add in the sense of arrogance that comes when hundreds of millions of people around the world are living on your platform, and social networks appear to be a very peculiar business—one in which companies might serially rise, fall, and disappear."
• Iceland is once again selling debt at a 5% yield. This is why troubled sovereigns should just jam their creditors and default.
• Icahn: "Many U.S. companies are very poorly run and non-competitive because corporate governance in the United States is, to a large extent, dysfunctional."
  

Academic

• Study: "We find that prices of stocks with high hedge fund ownership exhibit abnormal positive returns in the last minutes of trading on the last day of the quarter and that they rebound the following morning. [...] Further, these patterns are strongest when hedge fund owners have incentives to manipulate: less diversified funds (for which manipulating is less costly), funds experiencing a poor month in terms of absolute returns..."
• The Creative Advantage: relationships between creativity and psychopathologies.

Important Credit Bubble Stocks Posts

• More Cheap Energy: The Thorium Fuel Cycle
• Peculiar Market Inefficiency: Worthless Stocks That Refuse to Go to Zero
• "Broadband Electricity and the Free-Market Path to Electric Cars"
• The Wind Boondoggle

ATP Oil & Gas (ATPG) Offering $150 Million Convertible Perpetual Preferred Stock

ATP Oil & Gas Corporation (which I have previously mentioned) announced that it is offering approximately $150 million of convertible perpetual preferred stock, which will be convertible into shares of ATP common stock at a $22.20 conversion price.

I will be interested to see the pricing (yield) of this preferred. I would be interested in buying it.

ATP Oil & Gas (ATPG) Reduces First Lien Interest Rate

This is bullish for the notes that I mentioned the other day but have yet to do a full writeup on.
ATP Oil & Gas Corporation has amended its existing first lien facility to reduce its interest rate from 11% to 9% per annum, while improving the facility and extending the maturity date

Possibilities for Distressed Energy Investment

These are all the Energy Equipment & Services, Oil, Gas, and Consumable Fuels bonds traded within the past 30 days (on TRACE) at a yield greater than 10%.

OPTI CANADA INC 8.25 12/15/2014
OPTI CANADA INC 7.8 12/15/2014
DELTA PETROLEUM CORP 7.0 04/01/2015
CHENIERE ENERGY INC 2.25 08/01/2012
ATP OIL & GAS CORP 11.8 05/01/2015
CALLON PETROLEUM CO 13.0 09/15/2016

Not very many! Opti Canada's stock has gotten destroyed which implies bad things for the bonds and means we can't hedge by shorting the stock. We already follow and own Callon Petroleum.

The most interesting for further study look like ATP Oil & Gas (ATPG) and Delta Petroleum (DPTR). Quick calculation, it looks like DPTR has an EV/market value of debt around 7x. ATPG's is also high but I know they have a lot of new production coming online. I will take a closer look.

Monday Links: Value & Anti-Value (ATPG, OPST, PSD, GMXR)

Value

• Barron's has a blurb about ATP Oil & Gas (ATPG): The value of its proven and probable reserves, discounted at a 10% annual rate (a measure known as PV-10), is $6.6 billion, pretax. Should the disparity between market prices and value be narrowed, the stock would more than double from current prices. I like the ATPG bonds. I will have a post coming out about them. 
• OPT-Sciences: A Profitable Business Trading for Near Cash
• Pulse Data Inc. (PSD.TO) – It Doesn’t Get More Asymmetric Than This
• The Decline of Available Energy to Society
• GMX Resources: Strong Reserves and a New Twist on the Story
• Distressed Research - HNDUS (Harry & David f/k/a Bear Creek Holdings)

Anti-value

• “If you’re investing in a company whose operations are all in the China region, you may want to ask some questions about the quality of its audit...” 
• How Facebook Could Reach $125 Billion