Wednesday, March 4, 2015

What Are The Walter Energy Longs Thinking?

The stock is 77% owned by institutions and mutual funds, names like the College Retirement Equities Fund-Stock Account, the Vanguard Small-Cap Index Fund, the MFS New Discovery Fund (as of various 2014 reporting dates).

Meanwhile, the current yields on the bonds are 70-80 percent, and bondholders appear to be converting to stock through exchanges with the company just so that they can get liquid more easily.

How can you own this thing? Asleep at the switch?

14 comments:

WallStreetStoic said...

No idea. Maybe they figure they are so far in a hole they might as well just hang on and hope for a miracle rather than sell for pennies on the dollar. I'm long other coal stocks including CLD, BTU, and TCK and it's been a brutal few years but I can only imagine what it's been like for someone who rode WLT all the way down to it's current price. I bought WLT back in 2013 at about $15.70 thinking it was oversold at the time...little did I know...(I sold at a loss after about a week).

Disclosure: I own shares of CLD, BTU, TCK.

Mr. Gotham said...

BTU Looks like it may be a year or two beyond ACI/WLT/ANR. Rumor has it that they may be having trouble getting their second lien deal done. Their bonds are trading on the cusp of distressed levels. You might want to think rethink the equity exposure or move up the capital stack.

Anonymous said...

Seems like WLT has plenty of time before the inevitable BK..

These stocks never die

jHurt said...

There is massive optionality here in the equity. $70M equity on $3B+ of debt. I would actually think this should trade more with that considered (and that they have cash to make it through early next year).

Contrast this with MCP, which has a $200M+ market cap on $1.8B of debt, which likely does not have the cash to make it through the end of this year.

jHurt said...

Lets get a distress / bk watch going on Sandridge!! Their PV-10 at current strip is equal to their debt load, and they have an $800M market cap!

jHurt said...

Lets get an O&G watchlist: Sandridge (bonds $18%+, PIK'ng their preferred stock), Swift Energy (bonds 30%+ YTM, stock at $3+) and Comstock (20%+ YTM)

Anonymous said...

WLT is actually worse off than MCP, and the bond prices reflect that. (Ten cent bid for WLT unsecured now.)

Add pension and postretirement benefits to the debt - the equity is just way way out of the money.

jHurt said...

^MCP 6% Notes have an 8 bid. So what?

WLT has a longer liquidity runway and its equity value as a percentage of the market cap is much less (and thus I would argue it is a cheaper option relative to the risk vis a vis MCP)

Josh H said...

Wouldn't you rather have the debt for optionality vs the equity?

I don't like optionality arguments because the business got themselves into this mess because it is crappy to begin with.

This is different from a financial crisis where the economy shut down temporarily.

WLT cost structure is too high and competitors are bringing more production online at lower cost.

jHurt said...

^In terms of share price movement over last week+ i certainly lost this argument.

CP said...

http://stockcharts.com/h-sc/ui?s=WLT&p=D&yr=1&mn=0&dy=0&id=p38920976165

jHurt said...

MCP catching up!!! Helluva horse race

jHurt said...

Boom!

jHurt said...

boom!