The Petroquest preferred stock, yielding 10.4% and convertible.
Enterprise value through the preferred is $184mm and the year-end PV-10 is $240mm.
So you are essentially doing a 75% LTV loan against the PV-10 with a 10% coupon and a conversion option.
The breakout in natural gas prices continues - almost the entire curve is now above $4, with the front month contracts at their highest prices since December 2011.
The CHKDG (Chesapeake preferred) is stuck around 82 - I think par would be a fair price at this point, which would be 22% higher. I'm happy to collect the 6.1% yield until that point. Similar story with the PTQEP pref.
The PetroQuest Energy Inc., 6.875% Series B Cumulative Convertible Perpetual Preferred Stock was trading at $30.5 (60 percent of par) when I last mentioned it.
It has rallied to $38 and is now yielding 9%. Conversion price is $14.52, making parity $11 vs the current common share price of $7.
Market cap is $450 million. The company has $17.5 million of bank borrowings, and there's $150 million in bonds that trade at a premium to yield 9%. Only $65 million in preferreds.
The YTD EBITDA is roughly $40 million, or $80 million annualized, which gives EV/EBITDA of 8.5x and Debt+pref/EBITDA of under 3x.
One of the best, most epistemologically rigorous types of investing is low loan-to-value lending. If you can avoid downside risk, by making a loan against assets that are worth multiples of the loan amount, then you have positive expected value and a outcome distribution that avoids capital losses.
A subset of this type of opportunity is low LTV loans where you have a conversion option. Here, you have the same probability distribution that lacks sharply negative outcomes. However, the conversion option skews the distribution sharply more favorably because there's the chance that good results/hyperinflation/etc will move the option into the money.
I did a post a while back about another preferred stock, the PetroQuest Energy Inc., 6.875% Series B Cumulative Convertible Perpetual Preferred Stock. At that point it was trading at $34; it's now down to $30.5 (60 percent of par). They are now yielding 11.3%. Conversion price is $14.52, making parity $8.71 vs the current common share price of $4.82.
PQ has operations in Oklahoma, Texas, the Gulf Coast Basin, Arkansas and Wyoming and MRQ production was roughly 58% oil and NGLs by revenue. There's a May presentation [PDF] you can read. Market cap is $308 million. There's $150 million in bonds that trade at a premium to yield 8.9%. The MRQ EBITDA was roughly $20 million, or $80 million annualized, which gives EV/EBITDA of 7x and Debt+pref/EBITDA of only 3x. Management owns 12% which is pretty good for a small E&P, and institutions own an additional 77%.
One of the best, most epistemologically rigorous types of investing is low loan-to-value lending. If you can avoid downside risk, by making a loan against assets that are worth multiples of the loan amount, then you have positive expected value and a outcome distribution that avoids capital losses.
A subset of this type of opportunity is low LTV loans where you have a conversion option. Here, you have the same probability distribution that lacks sharply negative outcomes. However, the conversion option skews the distribution sharply more favorably because there's the chance that good results/hyperinflation/etc will move the option into the money.
The PetroQuest Energy Inc., 6.875% Series B Cumulative Convertible Perpetual Preferred Stock, which currently trades at ~$34 (68% of par) to yield roughly 10 percent. Conversion price is $14.52, making parity $9.87 vs the current common share price of $5.31.
They have operations in Oklahoma, Texas, the Gulf Coast Basin, Arkansas and Wyoming and MRQ production was roughly 58% oil and NGLs by revenue. There's a May presentation [PDF] you can read.
Market cap is $330 million. There's $10 million in bank debt and $150 million in bonds that trade at a premium to yield 8.9%. The preferreds have face value of $74.75 million. Enterprise value is $565 million and EV through the preferreds is $235 million.
The MRQ EBITDA was roughly $20 million, or $80 million annualized, which gives EV/EBITDA of 7x and Debt+pref/EBITDA of only 3x.
Management owns 12% which is pretty good for a small E&P, and institutions own an additional 77%.
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