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FMSA: A Zombie In Disguise?

|Includes: Fairmount Santrol, Inc. (FMSA)

Last night I re-read the FMSA Q2 Earnings Call transcript. Overall, the underlying frac sand fundamentals remain challenged with no end in sight. In particular, frac sand pricing seems likely to stay lower for longer. However, what really blew my mind was the CFO's response to the last question from an analyst about dealing with upcoming debt maturities:

"Michael Biehl

Absolutely. I mean we will continue to look at and evaluate if there is opportunities there. Obviously we are not going to wait till right before '19, we are going to start looking now at what is part of a multistep strategy. What things we can do to either potentially take down that bigger piece of '19 and ultimately plan as our markets ramp up and our cash flows strengthens as to what pieces of it we potentially refinance or even possibly another common stock offering in the future to take a bigger piece of that out completely. That's something now that we have got these, what we described as our first three steps to cost reduction, the extension and the common stock offering and the proceeds that we got from that. Now we can concentrating on that further out piece."

Essentially, the CFO admitted that the company will have to undergo further equity offerings to manage with the $1bn+ in debt maturities by 2019, as cash flow generation will not be sufficient.

Generally, this would cause equity investors great alarm as it sets them up for being bailed in for the benefit of the senior secured debtholders. Is FMSA a zombie?