Talk about closing the barn door after all the investors have left.
That’s what Citi Research oil and gas analyst Faisel Khan did Friday when he downgraded Linn Energy (LINE) and its sister firm LinnCo (LNCO) to Sell. The stocks are trading at 38 cents and 17 cents respectively on Friday. The company announced last week it is exploring “strategic alternatives related to its capital structure,” considered code language for likely bankruptcy.
“What is this, stomping on the grave?” tweeted Kevin Kaiser, energy analyst with Hedgeye Risk Management, a research boutique (Kaiser was recently profiled in Barron’s).
So what did Khan and team add in their report? Some more details about how the path to a bankruptcy filing might go. They write:
We believe the company will likely file for Chapter 11 after the next round of borrowing base redetermination and/or post a covenant breach. Linn’s borrowing base will likely be cut in the spring redetermination due to significantly lower commodity prices than the last redetermination completed in Oct. In addition, hedging gains through Oct 2016 will be excluded from the borrowing base calculation. The next borrowing base redetermination is scheduled for April.
They note Linn’s hedges, protecting cash flows against the steep declines in oil, are starting to roll off. Cash flows could turn negative next year.
They warn recoveries in bankruptcy for unsecured bondholders are likely to be low:
Based on current transactions we see in the market and including $1.9 Bil in hedges as well as cash on the balance sheet, we believe that the recovery factor on Linn’s unsecured credit will be low. This is reflected in the company’s bond prices that are trading at pennies to a dollar.
Finally, a rare sighting in a research report — a table at the end lists “expected share price return: -100%.”
It's to bad you can't post anything anymore on this board without starting a #$%$ contest!
Yes, something has to give. Here's another article, Saudi stocks dive, cost to insure debt spikes
There's mounting evidence of the financial pressure on Saudi Arabia, outside of the currency world.
The kingdom's stock market opened up to much fanfare last summer to financial institutions that had at least $5 billion of assets under management.
But Saudi Arabia's benchmark Tadawul index has plunged 18% so far in 2016 and 34% over the past year.
"Investors are shying away from the market," said Michael Daoud, vice president of Africa/Middle East equities at Auerbach Grayson, a broker dealer focused on emerging and frontier markets.
saudi stock market
Related: Why you should worry about cheap oil
Investors are also growing nervous about the health of Saudi Arabia's balance sheet. The kingdom recently disclosed a budget deficit of nearly $100 billion in 2015 and Standard & Poor's downgraded its credit rating in late October.
That explains why the cost to insure five years of Saudi debt has surged 26% over the past month, according to FactSet Research.
"This trend will no doubt continue given the country's current precarious fiscal situation which shows no signs of reverting, given oil's decade low levels," Simon Colvin, research analyst at Markit wrote in a recent report.
Saudi Arabia has been forced to slash spending by 14% to improve its fiscal situation. That included cutting expensive perks it provides to citizens, resulting in a 50% hike in gas prices. All of this is raising concerns about the threat of social unrest that could further destabilize the situation in the Middle East.
"Low oil prices could make it impossible for the Saudis to keep their own country stable, much less the rest of the region," says Brad McMillan, chief investment officer at Commonwealth Financial Network.
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We all have our own opinions. I'm a republican, and the thought of Trump in office scares the hell out of me. But if he is the candidate i will vote for him. Obama, Hillary era has got to go.
The fallout -- OPEC is winning
We know that U.S. oil production is falling, to the tune of about half a million barrels per day since the June peak. But OPEC is filling the gap in supply, adding an estimated 0.9 million barrels per day in 2015 and another 0.2 million barrels per day in 2016. Ending sanctions on Iran could add to that supply, so OPEC is basically keeping the world oversupplied to keep pressure on U.S. shale and other marginal oil producers.
For some companies that creates market conditions that help drive earnings growth and higher volumes. But with OPEC hurting marginal producers while spurring demand growth for product that will likely rise in price in the future, the cartel is winning the long game against U.S. oil companies -- and that'll continue for as long as it wants to keep prices low and take more market share.