Well, you have a prediction, so short it heavy and make a fortune if you are right.
Yeah, the way Oaktree is somehow holding the cards is a bit of a spanking to the Senior debt. It is hard to believe they are getting moved off the top priority line. I would have thought that their legal position would be strong, and the courts would favor that.
To me it is crazy that putting $22 million in is allowed to rearrange the existing priorities.
If the Senior was to maneuver to get back to a primary recovery position, which is where they should be, then they would be in a position to recover much more than 10-cents-on-the-dollar. Maybe not parity, but not the bath the current price says.
At a glance, the 15-cents-on-the-dollar looks like a steal. The Senior is in a primary position for a bunch of the assets. Not all of the assets, but a lot of them.
I would need to look closer at the current ranking of claims and assets. But here is a back of the envelope, without ANY checking ... all memory and deduction:
$150 million. Oaktree, secured by Chlor-Alkali and CoGen. Priority moved up by new loans
$100 million. Oaktree, unsecured, but moved up by the new loans
$22 million. Oaktree new loan. Possibly rising to much higher. Would be at the top priority
$650 million. Senior Secured debt. Claims against a lot of MCP assets. Might be secondary now.
The rest of the debt is unsecured, and in lower priority.
So, say Oaktree puts in another $150 million total. And the company is run at minimal levels, Mt Pass mothballed, and breakeven to small losses interim business. If the liquidation plan raises exactly $400 million, and Oaktree is now at the front of the line, they get repaid and the Senior gets nothing. If there is $500 million raised in liquidation, then that extra $100 million pays the Senior debt at 15-cents-on-the-dollar.
That seems pretty likely. And if the Senior debt manages to keep higher priority than Oaktree, they can easily get higher recovery.
To really answer the question, you have to have the debt claims against bankrupt Molycorp organized by priority ... and the priority might be changing with the bankruptcy loan provisions. And then you have to have a list of assets and a liquidation price-tag (liquidation means cheap). I'm not at all good at figuring liquidation prices.
But yeah, that debt seems under-priced with only a half-a$$ed valuation attempt. And it doesn't take into account that Oaktree seems to be front running things in a way that is a bit worrisome.
I think it is, but that is based on expectation that business from Siemens will increase. The Magnets side generated $12.2 million OIBDA in the past quarter and has been around that for a bit now. So it is close as the magnet-side stands now. But you have to factor in the change in raw material sourcing and the change from Siemens.
The simplest thing is a cash auction, that generates more than $650 million. Then the Senior debt takes that cash, and is set. I would be surprised if the secured debt does not end up repaid at close to 100%. There is still $1 billion of unsecured debt that will get lost.
The Siemens deal may be completely voided also. They were PR'ing because they wanted to claim a responsible source of Nd in the rare earth magnets. If Mt Pass is mothballed, then the Neo magnetic powder is just the same as any other magnet powder in sourcing ethics. There may be technical reasons to use one supplier over the other, but Siemens can no longer claim they are using environmentally responsible RE's.
If you immediately mothball Mt Pass, why do you need $126 million, much less $292 million?
I agree that business-wise, Neo units have value, and Mt Pass does not.
If I was other bondholders, I would not accept a new financing deal that gave "unchallenged primacy for the rest of the companies debt to Oaktree".
If I was the judge, I would accept that Mt Pass must be mothballed, and the other assets auctioned, and the debt allocated by primacy of position. The interesting thing is that part of Mt Pass is Oaktree collateral. They hold title to the Co-gen and Chlor-alkali facilities. Presumably, once Mt Pass is shut down, they can strip those two facilities and sell them for parts. The unsecured portion of their debt should not be granted primacy.
If I was the Senior secured, I would argue to be given everything that was not Mt Pass, as a comparable value to the $650-ish million of debt. Then have the courts liquidate Mt Pass stuff as scrap. Oaktree gets the two parts they own. The remaining bits might pay a few cents on the dollar to the unsecured debt (including $100 million of Oaktree's).
An auction of Neo makes sense, with the opening bid being $650 million, from the Senior Secured, payable to themselves. Selling Silmet separately makes sense as that was once independent.
Thanks Papadennis. I'm right there with you in this one. I kept being wrong and being slow at every instant. I'm sorry if in any way I ever shared my reasoning that kept me in a long position and it made any difference. I've never thought it was a worthwhile exercise to post anything less than my honest thoughts. But dammmm I was so wrong.
I might be wrong again on MCP. Who knows. If you still have some shares, I hope they go up.
Thanks. I still read it that it is up to a judge. It sounds like the judge will give weight to a business plan of reorganization with some kind of continuation of the Molycorp business.
I don't know why a judge would discharge debt, and allow assets to go elsewhere in excess of claims.
Say the reorganized company has exactly $800 million of value. That about covers the Oaktree and Senior secured debts. So a plan that issued new stock, and exchanged it to those two, and then wiped out everyone else would exactly balance. If there is $900 million of value, then they would issue $900 million of new stock, and give the first $800 million to the two secured debtholders. Then the remaining debtholders would get $100 million of stock for the $900 million of debt.
The problem I had with the original comment was that there would be surplus value for shareholders. And a judge is unlikely to discharge debt, and then allow shareholders of common stock to receive asset value. As far as I understand, that is forbidden by the laws. Debt precedes the claims of common stock.
I've got to add that Molycorp sucks. They pretty much screwed everyone. If you invested, if you loaned them money, they screwed you. They lost more money than expected at every opportunity. They spent more money than they had in the budget. And generally they suck at business.
And now they have finally declared bankruptcy.
I rode this down a long way. I sold yesterday when they delayed the Annual Meeting. The odds of a payoff just got too long at that point. I can hold longshot, if I see a payoff, and I had to admit that there was no way to look at the delayed meeting in any way other than as a clear sign of imminent doom.
MCP was my Waterloo in the market. I was too slow at every change. I never once had the right prediction. I would tell myself there was a 1-in-4 chance at something positive, and EVERY time they shot back a negative.
It is up to a bankruptcy judge. Molycorp is seeking to disallow debt from seeking collection. If the judge agrees to "discharge" the debt, then it is simply unpaid and tough cookies to the lenders. If the holders of the debt convince the judge that they should not be told "tough cookies" then they still have the collection process available.
I don't know the process well. So I don't know how judges respond to a company seeking to discharge debt. I would assume that any judge would never agree to a plan that allowed debt to get wiped out, and shareholders to retain value. That is just my understanding of the law.
The judge can wipe out the unsecured debt, and hand the company to the secured debt, if he thinks that the assets are not in excess of the secured debt total. But again, that has to wipe out shareholders. That does appear to be the plan that Molycorp is presenting. Hand the company to the secured debt, wiping out unsecured debt, and shareholders. The new owners pony up some fresh operating cash, then MCP can shut down Mt Pass processing. If MCP can make money, without debt interest, and with some chance at a magnet customer in Siemens ... then the secured debt has a chance at some kind of recovery as they sell off their equity.
I'm not expert. But I see the debt as larger than the assets. It will be up to a judge to determine the claims of the company and the claims of different debt classes, and the claims of shareholders.
Pennies on the dollar is better than no pennies on the dollar. MCP is seeking no pennies on the dollar via discharge.
I don't see how any assets are left after BK. JMO. The debt is $1.7 billion. There are not assets that equal that amount.
I don't understand the exclusion of assets outside of North America from the BK procedure. I understand the exclusion of co-owned assets. But if they have a wholly owned asset in China, it would seem that it is necessarily part of the process.
My understanding of chapter 11 bankruptcy procedures is strictly google results though. Chapter 11 is for companies that will keep operating during bankruptcy.
"Employees are working their usual schedules. Purchasing of goods and services will continue, with all purchases made after today’s filings granted a special administrative priority under the law.
As part of today’s filings, the Company filed a restructuring plan term sheet that broadly outlines the terms of the plan of reorganization that the Company expects to pursue. The plan term sheet provides for the discharge of the Company's more than $700 million in unsecured notes. The plan term sheet further calls for holders of the Debtors' $650 million in 10% senior secured notes to have their debt exchanged for a majority equity stake in reorganized Molycorp."
If I am holding an unsecured note, and Molycorp says they want to "discharge it" ... I would be explaining to the bankruptcy judge why that is unacceptable. Any debt takes priority over common shares. That is just the law. If there is single dime of shareholder value available, and an unpaid debt, the shareholders have to fork it over and the debt gets it.
I don't know the process. But I think the debt is larger than the assets. And the law awards the assets to the debt. So that should leave nothing.
All you have to do to confirm you are wrong is go look at the Yahoo list of links. Look at then dates. Here is one:
Rare Earth Miner Molycorp Crumbles On Payment Miss
BY ELAINE LOW, INVESTOR'S BUSINESS DAILY
06/01/2015 10:53 AM ET
Molycorp's (NYSE:MCP) stock is crashing, as the Colorado-based manufacturer of rare earth and rare metal products said it will miss its $32.5 million semiannual interest payment on its 10% Senior Secured Notes 2020. The payment was due Monday.
And then there is the filing listed:
Form 8-K for MOLYCORP, INC.
Other Events, Financial Statements and Exhibits
Item 8.01. Other Events.
On June 1, 2015, Molycorp, Inc. (the "Company") issued a press release announcing that it has elected to take advantage of the 30-day grace period with respect to the semi-annual interest payment due June 1, 2015 on its 10% Senior Secured Notes due 2020. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated into this Item 8.01 by reference.
So to be clear:
1 The company released the Q1 report, with no CC, as they announced they were in the midst of a debt restructuring.
2 On June 1st the company announced they were deferring a set of interest payments, as they were in the midst of a debt restructuring.
3 On June 15th the company announced they were deferring another set of interest payments, as they were in the midst of a debt restructuring.
I agree on the facts. But it seems that you are ignoring the prior two announcements that make the third PR a bit redundant.
The are negotiating with the bondholders on a debt restructure. Cash is not being paid as interest. I interpret it that they at the least will make those interest payments with equity, although that is just a guess.
We agree on the facts, but the prior announcements are the reason why the June 15th announcement is a non-event. They already said they were going to avoid paying interest with cash, as they are working on a debt restructuring.
They have some leverage at the moment. While the business has not shown any ability to make money, there is also no liquidation value. If they can present any kind of recovery plan for the debt, in the form of a long term business plan, they could cram down a debt deal. They currently have a way to "survive" another year, even without a debt deal, and that survival is its own threat to the debt. Debt holders have to sit on a big loss, and pray for a miracle.
I've guessed before, and I still see the most likely scenario as debtholders accepting equity as interest payments.
The next likely scenario is a negotiated haircut, where the debt accepts substantially below par, as equity swaps. I just can't see how that gets 100% accepted, and the game theory on who accepts and who doesn't makes it all too complex, and leaves too large a pool of remaining debt. Debt is trading at HUGE discounts to Par currently, so if you bought debt at today's prices, you probably think a swap is a good deal ... provided you see a path to profits from some business increase in sales (to Siemens).
We will see. The Annual Meeting is next week. They might answer a few questions about how survival might be accomplished. They should either be ready to pay the current delayed interest payments, or announce a deal by then.
OK. But that is not a rise in response to "news" of a delay in interest payments. The stock price went down with the news. And it went up from the June 12th price.
It is June 19th. MCP has a few more days left until the Annual meeting on June 25th. They better have some kind of debt resolution to talk about then. That's next Thursday.
They should have approval for a revers split on Thursday. I have to wonder if a reverse split is necessary for a debt deal. That would seem like semi-bad news. With something like 700 million shares currently authorized and about 230 million in the market, they have about 470 million shares available to use in a debt deal. At $0.5 that is $230 million, not enough to do much negotiating with. If they reverse split the shares out, but not the authorized shares, as the reverse split vote calls for, then they have more equity "cash" as authorized shares.
470 million shares after a 100-1 reverse split would be $23 billion of market value. That is not a realistic market value, but at least it is possible to work numbers in a debt-for-equity swap.
MCP went down. The simplest explanation is to get the facts correct. May 27th the stock was trading over 60-cents.
On May 28th there were rumors. This board had posts such as:
peppydeedee • May 28, 2015 1:10 PM Flag
NOT MAKING INTEREST PAYMENT
Molycorp plans to skip a June 1 interest payment as it negotiates restructuring with creditors, according to Bloomberg sources. The company will enter a 30-day grace period on first-lean notes maturing 2020.
On June 1st confirming PR's showed up and the stock dropped to $0.43. Since then it has been treading water, up and down. The official news of Molycorp debt negotiations was also part of the Q1 report release, where they announced they would not have a CC, as they were busy working on debt deals and they would give a better update after that was complete.
So your question is not making sense. Molycorp announced a delay in interest and the stock went down. That is generally explained by the fact that it was not a good thing.
The hockey stick temperature curve can be seen by googling "hockey stick controversy" and looking at the wikipedia.
The curve purports to show data that has a lot more error than is shown. Temperature approximations from so long ago have to be viewed with some skepticism. There are still many who accept the curve as a valid data set for temperature.
The thing that is important is the Global Mean Temperature. So consider the best way to measure that is to take the temperature at every spot on the globe, says every minute. Then average everything for a year. The average for 1951-1980 was about 57.2 F. People try to estimate very old temperatures with ice cores, tree rings, and other geological measurements.
There is a very real increase in climate: the average temperature of the earth. Not changes in the weather, which is local, and short term. But changes in the entirety of the global atmospheric temperature average. It is still cold at the North Pole, and hot in Death Valley. And the recent East Coast winter was COLD. But the AVERAGE is the thing that is being talked about. There are some serious consequences of a warmer earth.
The issue has become politicized. A response has to be collective, and will require individuals make sacrifices for a nebulous global good. Al Gore indelibly associated the issue with democrats in the US. But the reality is that global climate models are pretty solid, and they say the earth is warming, driven by atmospheric blanket changes. That should be a politically neutral bit of science.
Climate is not weather. That is a common problem.
The data you mention was fabricated ... I had to look it up. Scientific fraud does happen. But by far the majority of climate data is reliable and authentic.
There is a constant refrain that the temperature has not warmed in the last 15 years. That is because 1998 was one of the hottest years of all time. As an analogy, consider the homer record in baseball. Roger Maris set it in 1961 at 61 homers. Baseball players began taking PED's in the 70's and 80's, but you can legitimately say there was a pause in global homers, until 1998 when McGuire hit 70 homers. On the one hand, it is true that the record stood. But on the other, steroids were increasing homer power. But by choosing 1961 as the baseline, you could say (until 1998), that steroids could not be increasing power, as there was a 30 year "pause" in records. Likewise 1996 was exceptionally hot ... there is always variation. So comparatively, the temperature is "flat" over the last 15 years.
Except that anyone looking at the temperature data would easily see that the temperature is this spiky up and down, with an obvious trend upward. The spike in 1998 was hot. But 2014 was the hottest year on record, since 1880. The #2 spot is a tie between 2005 and 2010. 1998 is still way up there.
Look at the chart found in this link
Google: Past Decade the Warmest Since 1880
Pay attention to that spike in 1998. Then ask yourself is there a 17 year "pause"? Most don't see that. They see an uptrend.
Climate models are not complete or 100% accurate. But in testing, they have been pretty good. Water vapor IS INCREDIBLY important, and scientist pay a LOT of attention to that. It can have both positive and negative temperature effects. There are lots of things that effect climate, besides greenhouse gases. And the models always need improvement. But no one should look at local weather reports for global temperature.
There is no made up data that I am aware of.
The earth temperature is dependent on many things, one of which is the atmosphere "blanket" which keeps the temperature higher than a non-insulated black-body earth temperature. Without an atmosphere, the earth average temperature would be close to 0-degrees-fahrenheit. The physics on that is straightforward. Sun radiation strikes the earth. Radiation from a body is temperature dependent. Think of looking at the earth from space with infrared glasses ... it glows brighter where the temperature is hotter. At a steady state temperature, the energy in equals the energy out. That is, the temperature rises with the sun energy in, until the radiated glow in the infrared balances that energy in, with energy out.
This is all undeniable physics. And it is also undeniable that the atmosphere is responsible for the temperature of the earth being higher, as it traps the energy out flow, requiring a higher temperature to balance the energy in (from the sun). Changes in the atmosphere matter. Carbon dioxide has an absorption band in the infrared that is particularly strong, and effects the radiation of infrared energy out.
Again, that is undeniable physics.
The climate model is incomplete. Energy moves around in ways we don't fully account for. Ocean currents, and the ocean thermocline. Permafrost and ground temperature. Phase changes. There is a lot going on.
But even with all of that unknown, the model that carbon dioxide increases the insulation of the earth's atmospheric blanket has explained quite a lot. There is FAR more evidence and data that supports the theory of global warming from carbon dioxide, than disputing it. There is evidence that fails to support it. But generally, that evidence is more and more being explained within an expanding model, with increased understanding of the model.
It is still possible that the model is wrong. But your assertion that it is wrong is not well supported.
Well, to be fair, I don't think they were PREDICTING start up problems. I think they genuinely believed the story they told that it was a well-designed, state-of-the-art facility, and they expected to turn the key and be ramped up in no time.
Lower and lower RE prices have been an economic barrier, but they don't tell the real story, which is that Project Phoenix has yet to actually produce anything meaningful. As a purification facility, it is still an enormous bust. $1.5 billion spent on a facility that costs $150 million to run each year, and generates $300 million in revenues is a weak economic proposition, but when it turns out that the $1.5 billion facility costs $300 million to run each year, and produces about $50 million of sales ... that result sucks.
Mt Pass needs to be shut down.
I can't say if China is manipulating the RE prices in the market. Generally, they were manipulating them in favor of Molycorp, but the WTO decision seems to have made that difficult.
There is too much debt and too little in the way of sales.
And Mt Pass is not a rare earth source. It just isn't. Look at the numbers. It is an expensive hole in the ground that the company has thrown money into for a long while. There just is no reason for anyone to try to deal with the debt and the process of turning Mt Pass into a viable economic RE source. The only ones with a reason to do it are the current owners and current management.
I favor the shut down of Mt Pass, and I am an owner of the equity. It loses BIG MONEY EVERY QUARTER!!!! At some point rational thinking says that the business plan to build Project Phoenix and produce 20,000 mt per year is a stupid one. Ramp up the LREC and ship that off for a few quarters to get access to the Oaktree loans.
Then shut it down. If the government wants a money losing rare earth operation, sell it to the government, or rent it to the government. But the free market says don't make RE's at a place that it costs $60 million to get $10 million of RE's for the market. Just stop doing it.
If they legitimately could spend $75 million, to get $100 million of RE's for the market, via some economies of scale ... sure, long term think about that. But the only business plan that makes sense currently is one that says Mt Pass is a temporary path to loans, then it has to be shut down.
No PE company can make money at Mt Pass either. It isn't a business. It isn't a going concern. It isn't viable. It is no more. It has gone on to meet its maker.
Yes the debt is about to get screwed. Currently management is not paying debt interest. Hmmm. Currently, management is asking for a reverse split authorization. Hmmm. Currently management is producing essentially LREC, and nothing else at Mt Pass. Hmmm.
Do the math. A PE group will. If you don't have profits (sales revenue that exceeds costs) then you don't come in and take over Mt Pass. PE won't want Mt Pass.
Well, since I've been guessing that the most likely deal will be payment of interest with stock, the delay might support that. If they are close to a deal that does swap equity for interest payments, and they have a 30 day delay available on a cash payment, then it makes sense to delay, and then after they finalize a deal, to pay the interest with quite.
The big question is how much equity replaces a $32 million interest payment. Is there a premium or a discount? You can argue both. A premium (say $35 million of stock ... 10% premium) for the escape of the cash cost. A discount (say $29 million of equity ... 10% discount) to reflect that the debt is already on the edge of default, and any deal should only be partial payment.