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  • 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
  • Western Asset Mortgage Capital And The 16.4% Dividend Yield  [View article]
    The quality mreits selling at >20% discounts are indeed worth looking at. Agreed, Pos Concavity. But I take their estimates of IR sensitivity with a grain of salt. Look back at how their NAV behaved during the taper tantrum. They ended up being much more vulnerable to sudden IR vol, and basis risk, than their projected mathematical durations (based on historical models) would have predicted. Granted, they're all positioned more conservatively now, but playing around with mbs at 6-7 times leverage--even when you think you're conservatively hedged--can lead to some rude awakenings.

    Not that credit won't get hammered even worse in a period of IR vol...
    Jun 25, 2015. 10:34 AM | Likes Like |Link to Comment
  • Western Asset Mortgage Capital And The 16.4% Dividend Yield  [View article]
    Take a look at the Pimco complex--PDI, PCI. PKO, PTY. Also, Gundlach's DSL is selling at a decent discount. These things may go lower, but they're attractive (IMO) at these prices...
    Jun 25, 2015. 10:26 AM | Likes Like |Link to Comment
  • CorEnergy to buy EXXI Gulf gathering system for $245M, offer 11.25M shares  [View news story]
    Agree 100%, BGDD, and I've started nibbling on both ends of the maturities--the 2017s and the 2021s. Are you also buying the unsecureds, and what do you see as the tradeoffs on the diff maturities? The reported Franklin exchange proposal gives me pause, as I worry that this would be privately negotiated, and if it's not a tender offer open to all holders, I could see a big chunk of the early maturities jumping up the capital structure ahead of all the remaining unexchanged unsecureds.

    @ Bullishonmgmt. There's a fairly liquid market (for now), with modest bid-ask spreads, on several of their senior unsecured bonds. I assume the secureds were a PP and aren't publicly traded. You should be able to buy (after doing all your own DD, obviously) from any decent broker. Although if you're not familiar with trading distressed debt, this prob isn't the occasion to get your feet wet. This could get ugly and many of the possible outcomes run through a Ch. 11 BK court.
    Jun 23, 2015. 02:56 PM | 2 Likes Like |Link to Comment
  • Western Asset Mortgage Capital And The 16.4% Dividend Yield  [View article]
    I've been nibbling at little at AGNC and MTGE, and will probably continue to do so. But as a relative value proposition, the mreits to me aren't as attractive right now as some of the HY FI CEFs that have been absolutely taken out to the woodshed.

    Something to consider: the typical mreit is putting 6-7 turns of leverage onto a miniscule spread (1-1.5%) in order to eak out 10-12% ROE, and probably running a modest duration gap to earn even this much. Compare this to FI HY CEFs, which are trading at 10% discounts to NAV, and are earning 9-11% using only .3-.5:1 leverage (i.e. 30-50% versus 600%). They're taking some credit risk, undoubtedly, but they aren't going to face any margin calls or panic selling if the TSY or MBS markets seize up.
    Jun 23, 2015. 12:44 PM | 2 Likes Like |Link to Comment
  • CorEnergy to buy EXXI Gulf gathering system for $245M, offer 11.25M shares  [View news story]
    I wouldn't touch the EXXI common, but the debt looks interesting at these distressed levels. They've got a billion in cash now, and if they can come close to breakeven on cash flow, they just may be able to ride this thing out. With the far-dated unsecureds trading at .30 on the $, you're getting 2:1 odds that they make it to the other side.

    Only thing that scares me is mgmt talk of a secured third lien (at what rate, if the 2nd lien went for 11%...), which potentially throws any recoveries on the unsecureds out of the money.
    Jun 23, 2015. 10:36 AM | 4 Likes Like |Link to Comment
  • Western Asset Mortgage Capital And The 16.4% Dividend Yield  [View article]
    Issue isn't the latest cut, which is negligible. The questions are: (a) is WMC overpriced relative to NAV (and peers) due to the myopic focus of retail investors on yield; (b) is this divvy sustainable without cannibalizing book value; and (c) are they taking extraordinary risks in order to achieve an ROE that's off their peers by an order of magnitude?

    Yes, probably not, and yes would be my own provisional answers...

    WMC was once my largest holding, and I think they're sharp guys, but I'm out until the price corrects.
    Jun 23, 2015. 10:16 AM | Likes Like |Link to Comment
  • Addressing Western Asset Mortgage Capital's Perplexing Dividend Cut  [View article]
    Hey Rickrays,

    I like the Pimco CEF complex at these prices (PDI, PCI, PTY, PKO, PFN, RCS). Most of these are trading at 12 mo wide discounts to NAV, easily overearning their current 8-9% distributions, and will likely pay out the difference as year end special divs. They also seem to have done a good job across the complex in hedging out a lot of the IR risk, as some of these seem to have (so far) exhibited negative empirical duration. Doubleline's DSL also looks interesting at these prices. Many of the muni cefs (throw a dart and pick one) have also blown out in sympathy to the TSY complex.
    Jun 21, 2015. 09:14 AM | 1 Like Like |Link to Comment
  • Addressing Western Asset Mortgage Capital's Perplexing Dividend Cut  [View article]
    Too rich for my blood at >$15.50. I'm out completely now (including a core position held more or less since their IPO). Look forward to getting back in once this thing comes back to earth. Shifted a good slug of the proceeds into FI CEFs, which are looking cheap.
    Jun 19, 2015. 03:50 PM | Likes Like |Link to Comment
  • Investors rush out of fixed-income, and into stocks  [View news story]
    Speaking for the "dabblers," many of us have done just fine with bonds--mbs, junk, distressed, treasurys, munis, etc.--over the past five years, thank you very much!
    Jun 19, 2015. 01:11 PM | 8 Likes Like |Link to Comment
  • Walter Energy delays another bond payment  [View news story] brokerage acct is showing the 6/15/15 interest payment on the 9.875s of 2020 as actually paid, on time. Anyone else get their coupon?

    The skeptic in me is thinking (a) that my broker jumped the gun and credited the account before receiving the cash or (b) even if this is real, it'll be clawed back by the senior lenders as a fraudulent conveyance once they declare Ch. 11.
    Jun 17, 2015. 10:15 AM | Likes Like |Link to Comment
  • 1347 Property Insurance: Strong Long-Term Prospects  [View article]

    Maybe this is too simplistic an answer, but in order to figure out whether their cost of reinsurance has increased on a per unit of liability basis, you'd need to know their amount of outstanding liability, no? In the aggregate, 13.8 versus 10.2 is indeed a 30+% increase, but this in and of itself tells you nothing unless you know how much liability they're reinsuring. Haven't they grown their business (and corresponding liabilities) significantly in the past year, in which case the cost of reinsurance would necessarily increase proportionately?

    As you say, it would also be nice if they enjoyed some pricing power as well and could jack up the cost of premiums to pass on any additional cost per unit--if indeed their cost per unit has increased.
    Jun 11, 2015. 07:58 AM | 1 Like Like |Link to Comment