Shock Exchange

Long/short equity, long only, short only, special situations
Shock Exchange
Long/short equity, long only, short only, special situations
Contributor since: 2012
Company: New York Shock Exchange
User 23729473,
Management said it hoped to get a new deal by the end of the quarter. Fitch is on record saying a re-up by current lenders could take a while.
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lew69sd,
He's always right too.
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User 1223,
Do those terms include equity or warrants or both?
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WMMM,
They didn't write off $1.8B of goodwill attributed to North America.
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sofakinglogical,
The auditors could refuse to sign off on the audit ...
whitegold33,
Thanks for the kind words. If you keep reading the Shock Exchange will keep writing.
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WMMM,
WFT has run-rate EBITDA of $1.1B. At 7x EBITDA the enterprise value is about $7.7B. Outstanding debt is $7.5B so the equity is worth about $200MM. That's a long-winded way of saying the equity is worthless.
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WMMMM,
If WFT does not turn around then pulling the plug would be the best course. JPM may want to give the company a few more quarters to before that happens though.
What is your position? You think JPM will keep giving the company money out of charity?
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WMMM,
Who said JPM wants to force a bankruptcy? Nobody ever said that. JPM will likely give WFT as much time as possible to turn things around. However, if or when WFT's liquid assets (A/R, cash etc.) falls to levels too low to repay JPM then JPM would be prudent to pull the plug.
JPM still has not renewed the revolver. It will likely [i] raise the rate and [ii] ask for warrants or equity to share in the upside. If WFT does not turn things around then JPM will likely pull the plug and get its money back.
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Spidergirl,
Do tell
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Spidergirl,
[A] JPM does not have to throw in more money. If they asked for their $1B - $1.5B in debt back they could get repaid from [i] equipment sales, [ii] accounts receivable and [iii] inventory.
[B] By Q3 or Q4 JPM will not have enough liquid assets to repay JPM.
[C] WFT cannot service its $7.4B debt which is approaching 7x debt/EBITDA. Moody's will issue another downgrade. Bonds trade like the company is going bankrupt. There is no commercial reason for JPM to extend WFT more debt.
WFT needs equity and any more debt will come with equity-like risk. JPM will likely ask for equity or warrants to compensate them for that risk.
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Spidergirl,
WFT can't repay its debt, so you propose JPM give the company even more debt. That's the equivalent of throwing good money after bad. If JPM forces bankruptcy now it can get its money back. Each quarter WFT sells accounts receivable and other liquid assets and uses it for purposes other than paying JPM. In 2-3 quarters there will be no assets to cover JPM's loan.
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PapaWhisky,
If JPM keeps giving WFT more money it will never go bankrupt. You are exactly right. Two things, how much do you think WFT is worth. With $5.8B equity value and $7.4B debt, it trades at about 12x run-rate EBITDA, yet it can't even service its debt.
That new revolver has not been renewed yet. Instead of more debt, WFT needs equity. If you think JPM will give WFT another $500MM - $1B in capital with equity-like risk but only ask for debt-like returns then you are out of your mind. WFT will likely have to pay much higher interest and give up warrants or an outright equity stake.
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Ptatty,
Thanks for sharing.
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Spidergirl,
Fair point. What's the equity worth though?
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Spidergirl,
The Shock Exchange will let you answer you own question:
[i] The revolver should be backed by liquid assets. Take the company's balance sheet and
[a] subtract $350MM for the Q1 2016 debt payment,
[b] subtract $650MM for the Q2 2017 debt payment
[c] ask yourself what liquid assets are left over to repay a potential $2.25B revolving credit facility.
After pay outs to sub debt holders there will be nothing left in the till to repay JPM. Go back and look at the Shock Exchange debt analysis on Molycorp. MCP tried to fund free falling cash flow (from declining rare earth prices) with debt and ended up going bankrupt.
WFT needs equity. Management told longs that back in September. The situation has now worsened with oil sub-$40.
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WMMM,
It removes a near term issue that could have caused the company's collapse. What's more telling is that $3B in goodwill was not considered impaired. Secondly, the next hurdle is to get that revolver extended. Unless JP Morgan is into to giving out charity it will not renew that revolver.
Debt-to-EBITDA is approaching 7x. Moody's will downgrade the company's debt further into junk status. The last thing WFT needs is more debt. It needs equity and JPM and its lenders will tell the company that. This is not over by a long shot.
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Papa,
"Shock Exchange" would do just fine.
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jagtex,
They trade as low as 56 cents on the dollar.
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PapaWhisky,
The Shock Exchange covered with calls. It still was a bad quarter, as you tell from the article. The adjustment to the debt covenant was good but the $7.4B debt still appears untenable. Secondly, the entire industry is writing down goodwill but WFT had $0 write-downs? That was rather interesting, especially since the bonds are screaming bankruptcy.
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PapaWhisky,
Puts
22nowind,
You again.
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awmanzel,
We will soon find out. It's all about whether banks will keep extending the company more money.
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Michael knows it too. He just doesn't want to admit it.
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Lay Man,
SE does not have time to engage in a "parsing of words."
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Brian,
Competitors experienced double-digit revenue losses in North America. That is telling. Q4 FCF and 2016 guidance could drive the stock long-term. Secondly, the auditors' credibility is at stake this quarter. It would look bad [i] bonds signal bankruptcy, [ii] auditors are silent and [iii] WFT's going concern value comes into question shortly after Q4 audited numbers are released.
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AgileDave,
Someone called SE's articles "Nothing more than eye candy." He simply responded.
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AgileDave,
The politicians know already. They learned from Valeant and Turing.
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Hopeful17,
Analysts projected a revenue decline. It was low bar.
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Brian,
Analysts provide public relations for companies, rather than any real analysis. Two things, [i] the Shock Exchange believes a lot of this is out of habit. Since the Fed has been pumping up asset prices, no matter what you SE or any analyst said, stocks went up. Analysts who put out "sell ratings" were punished. This has been going on for nearly a decade now. Old habits are hard to break.
[ii] Analysts' main objective is not to give accurate ratings, but to keep their jobs. It doesn't matter that they are wrong, as long as everyone is wrong together you keep your job. That creates a herd mentality.
If an analyst is wrong alone then he will lose his job. Since most analysts have buy ratings on Weatherford there is no upside for analyst to go against the herd.
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Hopeful17,
The Shock Exchange has been the most accurate analyst on GILD -- bar none. Why would you post another person's article on this thread? What point are you trying to make? SE told you take profits in September and his thesis has played out to the tee.
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dudley13,
Thanks so much for the show of support.
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