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  • MolsonCoors Has A Dump On TAP [View article]
    They could probably clear at $10bn HY deal at a relatively attractive level and make this 80%+ accretive to EPS. Granted they haven't been this aggressive in the past, this is a once in a lifetime opportunity so why not?
    Oct 28, 2015. 09:05 PM | Likes Like |Link to Comment
  • MolsonCoors Has A Dump On TAP [View article]
    I doubt anyone thought for a second that they would even try to keep the MillerCoors JV. The real question to me is how many turns of leverage TAP wants to put on (are they willing to go HY?) and just how accretive the deal would be. Then you can try to handicap the odds the deal gets done. Back of the envelope, if you take pro forma TAP+JV EBITDA of $2.3bn, they could probably stay IG at 4x, so in that case support $9.2bn of debt, or ~$6bn of incremental debt, and it would probably still be 40% accretive to EPS.

    Personally, if I was running the show, I would be comfortable going to 6x debt/EBITDA and getting downgraded to HY. At 6 turns it would be over $10bn in incremental debt, which would allow TAP to fully fund acquiring the rest of MillerCoors at 10xEBITDA, a reasonable outcome for TAP and BUD. This might be a bit aggressive and they probably just go low-BBB, but in the current market a beer company with these brands, market share, and FCF generation could probably clear a $10bn high yield bond deal at a reasonable level, and this deal could be almost 100% accretive to EPS.

    That to me is why the risk/reward continues to be skewed against you.
    Oct 28, 2015. 09:01 PM | 1 Like Like |Link to Comment
  • MolsonCoors Has A Dump On TAP [View article]
    You clearly don't understand this deal and you make serious errors in just about every regard. First off, you have the price wrong (it is actually GBP44 cash or ~GBP39 in restricted stock), and the stock is set up specifically for Altria and BevCo which combined own over 40% of SAB and support the deal.

    On a standalone basis TAP is overvalued, you are right. What you fail to understand here is that this deal is most likely going through and with cheap funding available for TAP to acquire the entire MillerCoors stake for $10bn (10xEBITDA) it would be 50% to 100% accretive to EPS depending on the debt/equity mix, and the stock is easily worth $100. Antitrust concerns for ABI + SAB are overrated as the geographic overlap outside the U.S. is limited, and I don’t think anyone is concerned about TAP acquiring the JV.

    Taking a stab at handicapping it I would say 75% deal, 25% no deal; I just don't see how TAP could justify not jumping on this "once in a lifetime" opportunity which is clearly in shareholders' best interests. Putting an in-line multiple on TAP stock, in the deal case would put it at ~$120 and I would say downside is ~$65. This is 37% upside vs 26% downside, and weighting these would give an expected return in the low +20% area. Looks like a very bad trade to me. The best risk reward I have seen in the this deal was buying BUD stock, which was at a discount to the European listing and below the pre-deal price despite the fact a deal is likely to be 20%+ accretive and fundamentally improve the business, as well as being short ABI bonds into massive supply.

    Sorry for having a "dump" on your article. Good luck.
    Oct 16, 2015. 07:50 AM | 4 Likes Like |Link to Comment
  • Rumors on SABMiller takeover fire up again [View news story]
    They would obviously have to sell the MillerCoors joint vernture, probably to TAP which is why TAP is +5% on this rumour today.
    Sep 15, 2015. 04:38 PM | 1 Like Like |Link to Comment
  • Linn Energy - When Will The Slaughter End? [View article]
    I believe recovery on the LINE unsecureds would be negligible in BK. Where do you get the 30% est from?
    Aug 5, 2015. 01:23 PM | Likes Like |Link to Comment
  • Denison Mines: Buy The Drop [View article]
    I agree with you except for having the Fission leaders being a positive. With this deal the CEO has clearly demonstrated he is not acting in shareholders' best interests. He went as far as saying that a necessary condition for the deal was keeping all of Fission's employees. Maybe I am heartless, but I don't care about keeping Fission's employees, I care about creating shareholder value. It isn't hard to see why Dev would want to be at the helm of an Athabasca Basin powerhouse, but he seems to be ignoring his responsibility to shareholders. I would also recommend voting against the deal. This is just one more example of terrible corporate governance in Canada. We are assessing options to try to get some independent directors on the board, something this company desperately needs.
    Aug 4, 2015. 10:10 AM | Likes Like |Link to Comment
  • Linn Energy -17%, LinnCo -22% after suspending distributions [View news story]
    I have fair value of the units as zero, the LINE unsecureds as zero, the Berry bonds $0.05-$0.15. Base case is obviously BK. Oil at $80+ by 2017 would obviously change this.
    Aug 4, 2015. 08:58 AM | 1 Like Like |Link to Comment
  • Linn Energy -17%, LinnCo -22% after suspending distributions [View news story]
    I don't think that would be a great hedge, if the units go to zero so do the bonds, and if oil spikes you are a big loser.  My only position in the name has been short the unsecureds from mid-May.  Would have done better short the units, but with the bonds the downside was very limited.  Out now, but will watch for any decent bounce. 
    Jul 30, 2015. 04:54 PM | Likes Like |Link to Comment
  • Linn Energy -17%, LinnCo -22% after suspending distributions [View news story]
    I think the unsecureds are worthless in the event of default which is my base case. The Berry bonds may be worth $0.10-$0.15. Maybe I am wrong though and they can pull off some sort of conversion and survive if oil rebounds in the next couple years, but the risk-reward just isn't there.
    Jul 30, 2015. 11:47 AM | 4 Likes Like |Link to Comment
  • Linn Energy Death Watch Count Down [View article]
    The unsecureds are only up a few points on the news. The bond market seems to recognize that while this might extend LINE's life, they will definitely no longer have access to equity markets (not that they did before) and the march towards fair value will continue. I have fair value as 0 for the units, 0 for the LINE unsecureds and ~$0.15 for the Berry bonds. On the other hand, the operational update was materially better than expected. Best of luck, but this is just a bad structure for an E&P and these are weak assets with poor management.
    Jul 30, 2015. 10:25 AM | 2 Likes Like |Link to Comment
  • Linn Energy Death Watch Count Down [View article]
    By "fine" I meant not bankrupt (probably could have chosen a better word, it will likely get ugly) and am assuming they would eliminate the distribution sooner than later to give them a bit of headroom. I think we generally agree.
    Jul 13, 2015. 11:35 AM | Likes Like |Link to Comment
  • Linn Energy Death Watch Count Down [View article]
    They should be fine through 2017, but the revolver is redetermined semi-annually and in October it will fall further to ~$3.25bn, which would imply approx. $1bn of availability. I forget the exact terms for redetermination, but it is generally based on commodity prices and reserve declines so it will continue to shrink as time goes on without a rebound. As the hedges start really rolling off into 2017, they will go back to bleeding cash so could run into liquidity issues and the maturity wall will be fast approaching.
    Jul 13, 2015. 11:07 AM | 1 Like Like |Link to Comment
  • Linn Energy Death Watch Count Down [View article]
    Mark_A, I would tend to disagree. They would struggle to get a material equity raise done now, let alone if they cut the distribution. Also, with 5 year unsecureds yielding over 15% they could only do a secured bond, and would then permanently lose access to bond markets as well. Also, if I'm remembering correctly, effectively all of the assets are pledged as security under the revolver so I doubt they could even do this. The business model absolutely requires access to capital markets and that maturity wall in 2019 will be insurmountable without a major price rebound well before then. Personally, I would stick to higher quality names, but if you really want a leveraged bet on oil prices I think there are better ways (ie. futures).
    Jul 13, 2015. 10:39 AM | 1 Like Like |Link to Comment
  • The Simple Math Behind Linn Energy [View article]
    I generally agree with you, but when it comes down to it, my opinion is that LINE is purely a bet that prices recover before late 2016/2017 when the hedges start really rolling off. While I would generally lean this direction my confidence is not strong. If a recovery doesn't occur, they will be forced to cut the distribution further well before then and potentially lose access to debt and equity capital markets which is fundamental to the business model. To me, it is just too difficult to figure out exactly what level of commodity prices would be needed (and by when) in order to maintain access to capital markets to continue to implement the strategy and overcome the maturity wall in 2019. That said, if your confidence in a price recovery is high, the hedge book and no maturities before then could make it an interesting leveraged bet, but personally I think there are more attractive ways out there to play that thesis.

    Also, in the event of bankruptcy I don't think there is any value in the unsecureds (at least for LINE bonds, maybe $0.10 on the Berry bonds) but would be interested if you have a different view.
    Jul 8, 2015. 05:26 PM | 5 Likes Like |Link to Comment
  • Can Turquoise Hill Overcome Consequences From Mongolia's Divided Leaders? [View article]
    While the SouthGobi convictions are troubling, I think you are missing some very important information here. All of the risks you state have been present the past couple years so I would questions the logic of having recommended this stock at higher prices and not now when there is little indication of the situation having worsened. If anything, the new PM appears intelligent and pro-development. Also, no mention of the non-binding referendum ending today sanctioned by PM offering the people of Mongolia two options going forward:

    1. Move forward with OT and other major development projects
    2. Austerity and consumption cuts

    Every indication is that the PM will accept the result (which appears most likely to be #1 according to polls). How this could be ignored in any current analysis of TRQ eludes me. This will by no means end the challenges facing companies in Mongolia, but it might at last be a beginning.

    I would say that TRQ at its recent lows is more attractive than it has been in a long, long time. Does it remain a speculative endeavor at best? Certainly. However, with the quality of the asset and current low valuation in a depressed market I think it at least warrants an evaluation from the risk tolerant speculator. Personally, I believe OT remains a matter of when, not if. The more difficult matter is trying to value it from the perspective of a minority TRQ shareholder with so many unanswered questions and limited information.

    Regardless, the damage has been done and in any case it will take a long period of stable and honest governance before the true value of OT is realized. Hopefully for the sake of Mongolia they honor the investment agreement, FDI returns, and the people prosper.
    Feb 3, 2015. 11:10 AM | 3 Likes Like |Link to Comment