Thursday, November 19, 2009

Results of Callon Petroleum (CPE) Exchange Offer

As of yesterday, 91.6% of the notes were tendered in the exchange offer, which means that there are fewer than $17 million of these notes remaining.

The exchange offer has also been extended until Monday, so possibly more will tender.

Shrinking the amount of outstanding 2010 notes from $196 million to $17 million is tremendously bullish.


PD said...

i am suprised such a high % of bondholders tendered, they have to be getting some info for them to be so bullish on the equity.

50-60% return is hard to turn down.

It is really a prisoners dilema, because the NPV is so high to hold out versus tendering.

CP said...


The company did strip the covenants from the holdout notes and gave the new notes a better lien.

But it looks like they will easily be able to pay the holdouts next Dec.

Or, they are callable next month.

Anonymous said...

well the filings said that the liens were equivalent, unless 10mm remained (i think it was less than 10mm). but it is still debt and it has recourse so you will get paid, certain bonds funds may not be able to hold the old notes if certain criteria aren't met, so they would tender to ensure they are met.

i think it is important to remember than certain funds, actually don't care about NPV, they care that they can get a high yield dividend over the next 10 years so they can keep their jobs.

The only thing about tendering is it could reduce some uncertainty surrounding the old notes. for 600-$680 you get $750 in new notes and 50-$75 in shares. the shares are somewhat liquid, the new notes will be liquid for the first couple of months, so a bond fund potential can get the $830 from $680 in a couple of months rather than wait a year. Especially if Entrada get ugly, etc.

If someone purchased the old notes at like 300-$400; then they want the end transaction that will make them the most money in the shortest time with the least risk- efficient frontier.

what do you think the chances are that the remaining debt is small enough that they call the bonds at $1030?

CP said...

Really good comment.

That's what's great about fixed income - they really can't fail to pay me in December 2010.

I would be surprised if they call the notes - the IRR would be less than 9%. Management seems really aggressive. I can't believe they made the Texas acquisition while negotiating a distressed debt exchange, although it does seem accretive.

They would be especially unlikely to call if they could buy them in the market at anything like where my broker is marking them. Not that that is likely.

That is a good point about how bond fund managers are incentivized. As long as they think that way, I can eat their investors' lunch!

eh said... tremendously bullish.

I assume you mean for the holdout debtholders who were lucky or shrewd (that would be you) enough to acquire it at distressed prices.

Now my question: What are the odds on a GGC-like rally in the shares on all of this?

CP said...

Bullish for the holdouts.

The GGC rally was very strange and not what you would expect from a restructuring.

It seemed to be a positive feedback loop that started with some short covering, and then attracted momentum traders. It took a LONG time for the price to deflate again.