Unsecured bonds simply means the bonds do not have any particular assets as security. However, if the bonds are defaulted upon, they can 'foreclose' on the whole company - leaving the shareholders with zero.
You are right management holds a lot of cards, and, regardless of outcome, will end up with millions in their pockets. But management does not equal shareholder. Shareholders are very likely to be crushed.
I've seen this played out too many times.
*t is because the bonds are UNSECURED and Terry can take everything down.
*If the UNSECURED bondholders push a liquidation they aren't going to get jack in this environment.
*You have the true value of the assets and then the value of the assets in a liquidation.
*If the $1B in assets were liquidated they wouldn't get jack and the bondholders know that.
*So we are going to settle into an agreeable number and Terry is going to be able to take some new secured financing and knock out a good chunk of the unsecured bonds for a miniscule fraction of their face value.
*If Bonds are trading at $.10 on the dollar he should be able to go out and retired them for $.15.
Sentiment: Strong Buy
Bond markets are highly illiquid. There just aren't many investors who focus on distressed bonds. The original bond buyers were interested in safe-returns - which oil-industry bonds are no longer. So they are dumping.
Those selling bonds don't necessarily have any more insight than you or I - they are likely thinking there will be a debt-equity swap, which they want no part of, and are thus selling.
Are they right? Are the bonds only worth 12 cents on the dollar? I don't think so.
The bid is less than a dime implying that the overall notes are worth less than $90M.
What the heck is going on behind the scenes that is causing such a devaluation of the notes?
Swift has $1B in assets and they are not in Kansas, Oklahoma, or Mississippi. They are in Eagle Ford and a good producing area of South Louisiana. He can easily get a nice secured line of credit to knock out the original line of credit and buy back a good chunk of the bonds. You are finding out what UNSECURED bonds are all about. Way back when at $100+ oil people thought these were great with their 7% and 8% coupons. Well now that $100 in principal is worth $.12. Swift has all the power now and through his actions has absolutely SMASHED the UNSECURED notes. It really is quite a work of art. So $1B in assets, $315M in Secured Line of Credit, and Notes on the Open Market trading for $107M. He will pay a premium to retire them but what will that premium be? 15%...20%....30%...it is a steal for Swift. UNSECURED means what it means.
Sentiment: Strong Buy
They have the assets but since Terry can dictate the terms the bonds have no sway. You are finding out what UNSECURED means.
Sentiment: Strong Buy
Retire the initial line of credit.
Buy back a ton of bonds.
You guys are finding out what UNSECURED bonds are all about.
Terry holds all the cards and can take everyone down.
Sentiment: Strong Buy
If I had $500M to spend, things will be a lot easier. I will spend $30M to buy up 70% of common and take over the company first (look at KBIO in the past two days). Then I will give SFY (or myself) $470M as secured. First all the board member and Terry. I will install several bond holder including you as the board member. Now everybody's interest is aligned and now you know how to spend that $470 to survive.
That would work only as of yesterday though before the poison pill.
With common at $0.4/sh, they need to issue 500 million to 1 billion shares. I don't think they have that much shares allowed to issue. Otherwise, common holder would be the biggest winner out of this fiasco.
Agreed. Not gonna get any new financing, and not likely to take the path of converting unsecured bonds into secure second-lien bonds (as some other oil companies have done). Such a conversion improves the balance sheet, but does nothing to decrease interest expense coverage (the main driver of LOC terms).
Debt needs to be reduced AND interest expense needs to be cut. Gonna be a debt for equity swap.
No new financing, just current bonds exchanged for equity - with, perhaps, a simultaneous deal with the banks to increase the LOC.
I would suggest a slightly different outcome.
The company can handle the current interest payments - but just barely. What the company can't handle is the tight liquidity imposed by the banks. The most logical resolution is to reduce bond debt & interest expense by converting some or all bonds to equity.
You can't just look at the income statements to see if the company can handle the interest payments. A lot of the expenses are non-cash (such as DD&A).
Re: Spread between 2017 & 2022 - this is just due to bond market illiquidity/inefficiency. A large holder of the 2017 bonds wanted out today. No large holder of the 2022 bonds was dumping. I wouldn't read any more into it than that.
Issuer of the LOC is likely a consortium of banks - whatever the merits, they aren't in the business of buying distressed bonds. In any event, the LOC is senior to the bonds - its not a problem for them. The LOC isn't in any risk of default.
Your asset total is not right. Off by almost 100 mill. But really who cares. You won't recognize this company 1 year from now.
I'll pipe in, If you have 500 mill, what would you ask for, with company on its knees, virtually bled out? How about everything. Bonds get 10-20% of newco the 500 gets everything else. Common gets to be a placemat. This company can't handle any interest expense.
I would think that the issuer of the line of credit would be motivated to buy bonds on the open market and have some control over an reorg discussions. I don't believe a company can buy back callable bonds on the open market but the issuer of the LOC should be able to IMO. 9 cents tot the dollar for the 2017 bonds while the 2022 bonds are twice that. Seems like a large spread. Any ideas why it would be that large when equity conversion is likely the primary price valuation?
Search Oro Grande and Uno Mas on the Google.... Reserve Volume is over 943 Million BOE, Asset is over $4.26 Billion (Reference Company Q2, 2015 Earning Report, and August 2015 Company Presentation)
Bought More Today...... $3.89 Billion with Oro Grande and Uno Mas, may analyze the Reserve volume using the number company has been provided in their November 2015 Presentation At Swift Energy URL, than investor relations Tab and then corporate presentation, chose November 2015 Presentation and go to page 20. Result indicates Swift Energy shareholder Equity is increased to well over 3.89 Billion dollars with Oro Grande and Uno Mas.....Presentation provides the exact in place and Producible reservoir volumes for Oro Grande, Uno Mas, and existing Fasken, Eagle Ford and Louisiana, which are ORO GRANDE has 9.2 Tcf (1.59 Billion BOE) in place, with potential up to 4 Tcf which is 690 Million BOE recoverable, UNO Mas, 1.1 Tcf which is 190 Million BOE in place with potential up to 0.5 Tcf which is 86.2 Million BOE recoverable. Oro Grande and Uno Mas fields have total 1.78 Billion BOE resources in place and 776 Million BOE Producible OIL and Natural GAS. 12,000 acres of ORO GRANDE is developed. The price of producible resources is $6.44 per BOE, the remaining 12,000 acres is undeveloped, the price of undeveloped producible resources is $3.88 per BOE. UNO MAS may considered as undeveloped. Based on these, the asset value of ORO GRANDE and UNO MAS is exceeding 3.89 Billion Dollars
. Reserve Volume Over 963 Million BOE, Stockholders’ Equity is over 4.26 Billion
If they can do it now, they should be able to close the deal 3 month ago. As a matter of fact, the current situation is much much worse and I don't think they can do a deal at $40 oil and $2.1 gas.
With only $78M liquidity and new increased interest payment of $83M each year, they will be in the same situation next year. Who would risk $500M for a 10% return? The $500M would be much better put into use as DIP. Under 11, $310 credit line will be senior note and $877M note will be common. You will end up with much more cash and liquidity and much less debt when injecting $500M then.