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  • One Way To Value Miller Energy Preferred D Shares (MILL -PD) -Potential For Up To 700% In Gains [View instapost]
    Yah, wouldn't surprise me if the lenders weren't the ones who picked up the phone and called the SEC! After, of course, conveniently waiting long enough to muscle mgmt into issuing all those worthless pref shares ATM and getting their own cash out.

    The whole thing stunk like a dirty diaper from the get-go. First, senior secured lenders don't just suddenly up and start grabbing cash like that because oil/gas prices take a dip. My guess is that with disappointing drilling results and the cash burn, the lenders decided to take a closer look and were aghast at what they'd lent into.

    Now add some litigation/ fraud uncertainty to the mix, and who knows what this puppy will be worth once the dust clears. May be worth a flyer, esp. if they can clawback some of the cash through litigation. If
    Aug 7, 2015. 09:47 AM | 1 Like Like |Link to Comment
  • One Way To Value Miller Energy Preferred D Shares (MILL -PD) -Potential For Up To 700% In Gains [View instapost]
    Real bummer. Explains why the lenders got spooked and started grabbing cash. This news didn't just materialize today out of thin air. Given the lender's behavior, one could have inferred that something this egregious was brewing. They got snookered too, but likely figured it out before the memo got circulated.

    Sorry, and hope there's at least some recoveries for you!
    Aug 6, 2015. 02:22 PM | 1 Like Like |Link to Comment
  • Genworth -5.3% following earnings miss [View news story]
    Just can't see this going to zero (though I've been 100% wrong so far on the recent pricing of this one and AMBC)! Long-dated unsecured notes do seem to be selling off a few points in sympathy with the equity, post-earnings.

    We'll see. I'd be satisfied with a bounce-back to $8-10 in the next 12-24 months.
    Aug 6, 2015. 12:56 PM | Likes Like |Link to Comment
  • Genworth -5.3% following earnings miss [View news story]
    Good thoughtful analysis, Brian. Agree with most of your points. But don't you think that the ramp-up of the US mortgage insurance business has the potential to greatly increase earnings and ROE? Haven't been following this one so closely, but my impression was that they're deleveraging and disposing of non-core assets such that they can deploy these resources into USMI--pending sufficient capital ratios and credit upgrades. LTC continues to be the wild card--a call option on them being able to do what no one else has been able to do and figure out this biz...
    Aug 6, 2015. 09:45 AM | 1 Like Like |Link to Comment
  • The Linn Energy Drop Has Created A Buying Opportunity For Long-Term Investors [View article]
    If you're interested in making an extremely leveraged bet on USO/UNG via Linn's capital structure (which is what this trade really amounts to), why not do exactly what Linn's mgmt is doing and buy their notes at a 35% discount to par? They've essentially given up on the common units now that there's no room to issue more/ dilute unitholders.

    If Linn goes under, it's likely the same result for the units and the unsecured notes (a big zero!). If they survive another 2-3 years, you recapture a substantial part of your investment by collecting a couple of years worth of coupons. And if they make it to the other side, you're looking at a 100% return on the unsecured notes at these prices.

    Just to be clear: at this stage of the game, even the unsecured notes look like a sucker bet to me, and you could argue that Linn's mgmt is buying them only because they have to. But if you're determined to speculate on Linn's future, it seems like the unsecured notes are the least bad way to play this one...

    My 2 cents, FWIW. Traded in and out of some of the Berry notes earlier in the year, but no position here.
    Aug 6, 2015. 09:34 AM | 1 Like Like |Link to Comment
  • Genworth Financial Revisited: The Risk/Reward Scenario [View instapost]
    Yah, I don't get this one either. At 5-6 times trough earnings and .25 or whatever of book, this is absurd.

    Though I've been wrong here so far!
    Aug 5, 2015. 10:25 AM | Likes Like |Link to Comment
  • Genworth -5.3% following earnings miss [View news story]
    Hm, so a .24 qtr, annualized forward is a buck +/- earnings, before they even get ramped up on the US mortgage insurance biz. Means the stock is selling now at roughly 6 times trough earnings, and something like .3 of book value.

    Cheap anyone?
    Aug 5, 2015. 09:53 AM | Likes Like |Link to Comment
  • The Bleeding Has Only Begun: Western Asset Mortgage Capital [View article]
    Not sure what people were expecting--or why these numbers came as such a surprise. It was pretty obvious that (a) the current divvy wasn't going to be fully covered on a going-forward basis, and (b) that the stock was way expensive relative to (a modestly lower) NAV.

    Maybe I just had low expectations, but I actually thought it was a pretty decent qtr for them, esp. given some of the other debacles in the space.

    Thing that jumps out to me is the steady migration into credit risk. I've said this before and will say again: they need to lighten up the leverage if they're going to take on this much credit risk. You can hedge away some of the vol/ duration in mbs, but credit risk+leverage=explosive combo.
    Jul 31, 2015. 02:53 PM | 3 Likes Like |Link to Comment
  • Annaly Capital higher on Gundlach mention [View news story]
    In most cases, the mgmt agreements make it virtually impossible to strip the assets (at par) from the mgmt firm/ traded vehicle (at 20% discount). Even if you could accumulate enough shares to take control of the board, in most of these pups there are huge break-up fees for releasing the mgr that would make it prohibitive to ditch them.

    These things are rife with conflicts of interest, which is, arguably, one of the reasons why they ought more naturally to trade at some discount to NAV...
    Jul 21, 2015. 09:07 AM | Likes Like |Link to Comment
  • One Way To Value Miller Energy Preferred D Shares (MILL -PD) -Potential For Up To 700% In Gains [View instapost]
    "Longer term the pref's will be in a better situation because Miller will remain solvent instead of going BK."

    I can see why it'd appear this way to most folks, but this is a fallacy. You're correct that the ability of Mill to continue operating in the short term (rather than being pushed into immediate BK) keeps the upside scenario alive. Mill could survive and thrive. Every dumpster divers' dream!

    However, in the longer term, a restructuring and protracted distress is almost axiomatically bad for the preferred holders, who would be better off with an **immediate** bankruptcy filing. Let me repeat that so that it can sink in. You would actually be better off if they filed and restructured under the current capital structure before new money comes in the door (secured) and core assets start getting sold off.

    I've seen this movie hundreds of times before. In fact, I'm on the other side of it right now with some unsecured Walter Energy notes that were well covered when I bought them. Unless they can stanch the cash burn, they will hock everything of value and you will be left with nothing.

    Unsecured debt (or even worse, preferreds)+extended cash burn=crap for recoveries.

    Let's see the terms of the refinance when they come out on the 29th, or whenever. Everyone will applaud because the net interest expense goes down. Only the savvy will notice that the prefs are materially worse off in their coverage ratio (margin of safety) in the wake of the restructuring.

    Hope I'm wrong, but only time will tell...
    Jul 16, 2015. 09:45 AM | 2 Likes Like |Link to Comment
  • One Way To Value Miller Energy Preferred D Shares (MILL -PD) -Potential For Up To 700% In Gains [View instapost]
    A very carefully worded but pretty vapid statement about their "beliefs," given "current circumstances."

    What do we actually know now that we didn't know before:

    a) they've received in cash part of the Alaska payment, and "expect" to get the rest of it.
    b) they have some offers on the table for a refinancing/sale/lease... which, subject to closing conditions, are going to keep them from having to file for bk in the immediate future. Wouldn't it be truly alarming if they didn't have any offers?
    c) they "believe" that their assets are worth more than their liabilities, but are going to announce further and significant writedowns in a couple of weeks.

    Is this all better than a poke in the eye or a swift Ch. 11 filing? Sure. But it begs all the real questions: namely, (a) what kind of refinancing, on what terms, and where will this refi leave the preferreds in the capital structure (hint, almost definitionally, worse off than they currently stand: new money comes in secured, at the expense of the prefs); (b) how are they going to suddenly start turning profits from their disappointing wells; and (c) what are the actual marketable values of their assets in a worst case scenario?

    Sorry to be the eternal skeptic here, but nothing material has changed after these two statements: it's all in the recovery values, and anyone playing this for anything other than a recovery play from a restructuring is gonna be mighty disappointed...
    Jul 15, 2015. 12:02 PM | 1 Like Like |Link to Comment
  • Is Ambac A Good Buy? [View article]
    Agree with your thesis generally, but with some significant cavils. Yes, AMBC is dirt cheap right now. Momo headline chasers and hedge funds seeking to hedge out PR bond exposure by shorting the monolines have beaten the crap out of this name.

    PR exposure is *very* manageable, as you say, though be careful with the equivalency of numbers for their face value exposure. The notional or par amount of COFINAs they're exposed to down the road (in 2047+) is a hefty $5-6B or so. The reason the headline # looks so much lower is because these are super long-dated zero coupon bonds that were issued at literally pennies on the $. The numbers they're citing--as I understand it--apply to the face value of the bonds when issued, not the par value they're responsible for down the road. So the ultimate exposure--in 30 years--is much larger. But given that they owe no interest payments on the bonds (zero coupons) in the meantime, the discounted present value of those liabilities is much smaller than it may someday become if COFINA gets a haircut in restructuring. They also have the optionality of retiring those exposures at ridiculous discounts to par by buying up the bonds in the mkt should the COFINA structure get compromised.

    Lack of catalyst? Um, how about the eventual settlement of the BOA lawsuit, which is likely to amount in the billions? Or any of the other mtg related lawsuits they're vigorously pursuing? This is a litigation play as much as a deep value play right now. Also, there will be heavy short covering once we get clarity on the PR situation in the next 6-12 months.
    Jul 14, 2015. 10:00 AM | 1 Like Like |Link to Comment
  • Partial victory for bond insurers in Puerto Rico case [View news story]
    Agreed--which is why I said fed Ch. 9 is "more predictable" than a Creole bankruptcy undertaken in PR courts and solely at the discretion of PR judges.

    Detroit raised huge issues that weren't fully answered in the case, and like you say, the norm seems to have been GOs taking it on the chin relative to pensioners. But even in the worst outcome of a fed Ch. 9, I have a hard time seeing bonds backed by constitutional pledges or dedicated revenue streams getting whacked to the tune of 50% haircuts or whatever the market is currently implying.

    On the COFINA--it's a pretty strong lien within their capital structure, with a lockbox on the revenue stream. But in raising the issue of changing the sales tax to a VAT, they've already shown a willingness to revisit the revenue streams that support it. If you assume that recoveries will be proportionate to the strength of the lien, then you've got to think that COFINA will do well, at least relative to some of the flimsier credits.

    Still, the whole thing is a gigantic clusterfrack. One example: yesterday I was digging through the financials of some hospital revenue bonds, issued under the AFICA structure. These are POS's no doubt, but they were being offered at like .30 on the $, so I figure worth a look, right? Anyway, with only a cursory glance at the financials, it's clear they'd be totally insolvent if they paid their electrical bills, which are part of a ballooning accounts payable #. Just these two or three hospitals alone owe PREPA millions of $. So how do you sort this out: in this one instance, making PREPA good means busting an issue under the AFICA structure, and vice versa. I've never seen anything so convoluted and impossible to sort out.

    My modest proposal to save everyone years or time and hundreds of millions of $ in legal fees: everybody agree to take a 15% haircut across the board; issue a new series of PR bonds with an iron-clad lien; and we all move on to bigger and better things....
    Jul 8, 2015. 11:36 AM | 1 Like Like |Link to Comment
  • Partial victory for bond insurers in Puerto Rico case [View news story]
    Recoveries under US Ch. 9 bk are likely to be more predictable--and favorable to creditors--than under the 2014 legislation proposed by PR (and struck down by the Fed appeals court). I'd prefer Congress not to authorize fed Ch. 9 because it gives more leverage to PR in a negotiated restructuring, but fed Ch. 9 is by no means the worst possible outcome for bondholders.

    One interesting dynamic to watch: there's a bifurcation not only among PR bondholders (GO-owners versus the PREPA coalition), but among the monoline bond insurers themselves. Unlike AGO, MBI, and SYCRF, which are on the hook for the PREPA utility, AMBAC has minimal PREPA exposure. Their big problem (in 2047) is the COFINA structure. So there's some sense in which they could conceivably support a Ch. 9 authorization that stiffs the PREPA crowd but doesn't pierce the COFINA structure (i.e. UTGOS versus Water and Sewer in Detroit...). Just as there'll be winners and losers among the bondholder constituency, it's entirely possible that there'll be divisions among the monolines depending on which way this all heads politically.

    So many moving parts in the capital structure...
    Jul 7, 2015. 05:02 PM | 3 Likes Like |Link to Comment
  • Partial victory for bond insurers in Puerto Rico case [View news story]
    Getting this Creole bankruptcy threat off the table is a big positive for PREPA and other bondholders. Takes away the biggest uncertainty/ tail risk, IMO. US Ch. 9 is at least somewhat predictable.

    But rather than going there, how about we all just take a 15% haircut in exchange for a more secure, perfected lien (a la Detroit), ring the cash register for a 100% profit, and move along on our merry way?
    Jul 7, 2015. 03:14 PM | Likes Like |Link to Comment