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  • 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
  • Western Asset Mortgage Capital Corporation And My Bearish Interest Rate Assessment [View article]
    Vaya con Dios, yield lovers! WMC is a great operation, and was once my single largest holding. It may be some day again when the price comes down 15-20%.
    Jul 6, 2015. 08:33 PM | Likes Like |Link to Comment
  • Greece Referendum: No - 61.1%. Yes - 38.9% [View news story]
    Excellent move by the Greeks. In a choice between taking a lot of pain upfront, or languishing in a condition of debt servitude for decades, they chose the lesser of two evils. It'll be chaos for 12-18 months, and some folks are prob gonna lose their life savings, but they should be able to devalue their currency, repudiate the external debt, revive the economy, and maybe--just maybe, given that people have the attention span of a mayfly--they'll be able to access international capital markets again in a couple of years.
    Jul 5, 2015. 03:32 PM | 5 Likes Like |Link to Comment
  • A Speculative 38% Yield From EXXI Preferred Stock [View article]
    That's the 640M question, no? If any one of us knew the answer to that, with even a moderate degree of certainty, we'd all be significantly wealthier :)

    All you can say is that there's a non-trivial probability they'll end up BK (say, 30%), weigh that off the prospective rewards if they make it (asy, 3-10 times your investment, depending where you are in the capital structure), and size your bets accordingly (Kelly rule).

    That's the game. Some are better at it than others.
    Jul 5, 2015. 10:54 AM | Likes Like |Link to Comment
  • Western Asset Mortgage Capital Corporation And My Bearish Interest Rate Assessment [View article]
    All the bells and whistles aside (and I generally do like bells and whistles...), this boils down to whether WMC is expensive or cheap right now. And it looks to me like it's exceedingly rich relative to its peers. I was shocked to see it keep climbing further into ex-div and even higher afterward. They've got to be considering an SPO.

    Dividend hogs reaching to eak out an extra 4-5% yield over peers selling at 20% discounts to NAV need to be very, very careful at these prices....
    Jul 4, 2015. 08:32 AM | Likes Like |Link to Comment
  • Scanning The SA Family For Alpha: Rosenose [View article]
    Kudos to RS and RN for showing how the platform is supposed to work.

    Alas, wish that this were the rule rather than the exception on SA. Don't get me wrong, there are some excellent and thoughtful commenters and authors I'm pleased to have gotten to know, and learn from. But can't even count the articles written by authors who literally know *nothing* about their subjects, present conjectures rather than hard data, or offer recommendations that willfully omit anything disconfirming of their thesis. And worst of all, many of them--unlike RS--seem unwilling to change their minds when presented with counterfactual evidence.

    SA is a human sociological laboratory--featuring the best and worst of said. Crowd-sourcing and the decentralized aggregation of information, check, but also an object lesson in confirmation bias, anchoring, framing effects, overconfidence, etc. Yours truly is hardly immune, I'm sad to say.

    Disclosures are kind of redundant, no? If someone has a good idea, and they're willing to take the time to write it up, I just assume they've got money riding on it. Why wouldn't they?
    Jul 3, 2015. 01:59 PM | 3 Likes Like |Link to Comment
  • Ambac confirms PR exposure, sets conference call [View news story]
    Yeah, they've got some problematic exposure in PR, but the brunt of it doesn't come due (6B of COFINA zeros) until 2047. So they owe no coupons in the meantime, and stand a good shot at being able to remediate some of the potential losses by buying up the exposure in the market.
    Jul 2, 2015. 08:40 PM | Likes Like |Link to Comment
  • PREPA reportedly reaches deal to cover debt payment [View news story]
    Safety is a function of price. At .40 on the $, even trash debt from PR can be pretty safe.
    Jul 1, 2015. 10:10 AM | 2 Likes Like |Link to Comment
  • MBIA plunges further as Puerto Rico mulls bankruptcy [View news story]
    Ok, I *know* the numbers are misleading, but AMBC is currently selling for 1.5 times trailing earnings. Get your head around that #: a PE of 1.5!

    So their recent earnings probably aren't directly replicable, and they've got a couple billion of potential exposure to PR (which looks worse than it probably is), but still, you've gotta at least kick the tires on this one and give it a look...
    Jun 30, 2015. 05:22 PM | Likes Like |Link to Comment
  • A Speculative 38% Yield From EXXI Preferred Stock [View article] could just buy the unsecured notes, which are also paying eye-popping (and non-deferrable) yields in cash (not shares), are senior to the preferred in the capital structure, and probably have better liquidity right now in terms of bid/ask.

    Whether you want to own anything from EXXI is an open question. But if you do, I can't imagine any reason you'd want to own the prefs in lieu of the notes. A trade for yield-hogs only...
    Jun 29, 2015. 12:48 PM | 6 Likes Like |Link to Comment
  • Miller Energy Resources: In The Midst Of Chaos, There Is Also Opportunity [View article]
    Again, I don't mean to pick nits or offend, but by virtue of the fact that they cannot themselves compel a BK filing, the prefholders are considerably handicapped in this situation. For purposes of BK, they aren't true debt but equity, and any dividends they may be owed in arrears will be wiped in a BK filing. Undeclared and unpaid divvies are below even unsecured debts and trade claims, no?

    Ok, so they can"defer" for only 4 qtrs. First, this humongous mess will be resolved one way or another--either by an exchange offer "restructuring" or Ch. 11 filing well within that time period. But let's say it drags on for 4 qtrs. What can the prefholders do then? Demand a seat on the board? And then do what? Unless, like Darren says, some party with deep pockets steps forward to take an activist position, the prefs are orphans. And w/r/t a white knight activist stepping up, think about the following: why would anyone who wanted to put new capital into this mess do so at anything other than the senior secured level? If I were looking at this as a private equity type, the ONLY way I'd touch this is senior secured and with asbestos mittens. Someone's going to take the trouble to accumulate a bunch of prefs and then get stiffed? Why would they do this?

    The capital structure (most notably, the accruing debt on the prefs) is unsustainable, and will need to be adjusted somehow, some way in the near future. This whole investment thesis boils down to two variables (a) the enterprise value of Mill itself; and (b) the leverage of prefholders in being able to bargain for a share of the post-reorg entity.

    If you and Darren are in the ballpark about (a), and somewhat reasonable about (b), then you're going to make bank, no question about it. Sincere wishes to you all, but i do think that longs here are being at least somewhat unrealistic about both (a) and (b). Remember: you have to be right about both to get paid.
    Jun 29, 2015. 10:34 AM | 1 Like Like |Link to Comment
  • Miller Energy Resources: In The Midst Of Chaos, There Is Also Opportunity [View article]
    Geesh, for once I'm not the one who starts the pissing match, LOL ;)

    Aside from Mike's hectoring tone, I do find what he reports to be entirely believable and consistent with a skeptical view of the events we've witnessed publicly in MILL.

    Secured lenders who are comfortable with their collateral positioning do not panic and grab cash in ways that wreck capital structures, and reputable, trustworthy mgmt teams do not issue preferred shares ATM at .30 on the $. That and the abysmal drilling record and cash burn have kept me from pouncing on this thing.

    As for a voluntary conversion offer, the preferred holders may not have a choice but to take whatever they're offered. Prefs can't force a BK filing, so pref holders can be made to cool their heels indefinitely. It'd likely be presented as part of a prepack Ch. 11, in which prefholders can either approve the consensual deal or risk getting something much worse crammed down on them in an adversarial BK. And as far as prospects for recovery in BK--you might ask who's going to front the cash to hire legal representation for pref holders, to pay for a supporting valuation, etc. A long and drawn out adversarial BK can itself burn 15-20M, and someone will need to pony up for the effort. It;s conjectural, obviously, but the most likely scenario is they scrape together enough cash over the next few months to get KeyBank out of the equation, Apollo provides them with DIP and a new funding package as part of some pre-packaged restructuring, and the pref holders with zero leverage can either get on board with a conversion plan or get buried in BK proceedings.

    The prefs may indeed be the fulcrum, but they have extremely limited leverage.

    Disclosure: no position!
    Jun 28, 2015. 09:40 AM | 1 Like Like |Link to Comment
  • CorEnergy to buy EXXI Gulf gathering system for $245M, offer 11.25M shares [View news story]
    Ditto to BGDD...

    Point A, he's long the bonds, so it's not like he's out to slander them.

    And B, my own calculations of their debt service costs (don't have the paperwork in front of me) came out to +/- $385 million.

    P32 needs to chill. You can be long the debt while still being realistic (as I am) that BK is definitely one of the range of possible outcomes on the table.
    Jun 25, 2015. 10:39 AM | 4 Likes Like |Link to Comment