I still think it's more of a statistical probability to reflect the fact that MILL is clearly a distressed company. I don't think Apollo really knows what they will ultimately recover. If a company has a pool of accounts receivables they are going to take an allowance against them. They don't necessarily know which ones will be bad or how bad they will be, but they try to take a reasonable guess for accounting purposes. That's all Apollo has down and I don't think people should read into it.
The above is not intended to defend MILL. Why anyone would own MILL-PC / MILL-PD when they can buy EXIXF (shout out to "Long Player" for his seeking alpha article) for a bigger discount to par is hard to say. If MILL does go bust, the 10% valuation allowance by Apollo could be really low. If MILL does fail, Apollo deserves a lot of credit for the huge loss they will undoubtedly take. Had Apollo not taken such a hard line with MILL, the company might have had continued access to capital and been in a somewhat better position. Some of the moves that Apollo made (overly restrictive covenants and the huge markup in interest rates) may not look so wise in retrospect. MILL was already up the creek, but Apollo took away their paddle.
The agreement is very positive since it raises regulatory capital. You may see it as just putting cash from one pocket into another pocket, but regulators count cash more in some pockets than others.
I certainly don't want to defend MILL, but Apollo carrying the loans at 90% could mean that they expect a 2/3 chance to get back 100% and a 1/3 chance to get back 70%. It doesn't necessarily mean they expect to get back 90%.
The biggest problem with MILL-PC / MILL-PD is that they are over-priced relative to other better opportunities. Why would you buy Lehman during the financial crisis when Goldman Sachs and BankAmerica are also on sale? The par 100 SDRXP (Sandridge par 100) is on sale for 22 and change and they just declared a 4.25 dividend. Net out the divvy and its 18 cents on the dollar. MILL-PC / MILL-PD are at around 14 cents on the dollar. After SDRXP declares the next dividend in 6 months the net cost will be the same as for MILL-PC / MILL-PD.
Two highly speculative preferred stocks that are trading for nearly the same price as MILL-PC / MILL-PD that are actually paying the dividend are GDPAN and EXIXF. GDPAN is a par 50 for GDP and EXIXF is a par 250 for EXXI. MILL has little chance of paying the preferred dividend, GDPAN and EXIXF are both current.
MILL has little cash. EXIXF has about a billion in liquidity and GDP has about 100 million. Both companies are much better managed than MILL. Both recently completed bond sales. MILL has no access to capital. I've written 3 Seeking Alpha articles on the GDP preferred issues and a new EXXI article on their preferred will be out shortly. Panick Value Research Report (google it) subscribers get advance copies of upcoming articles as well as daily alerts.
Now that MILL has cutoff the preferred dividend, I sure wouldn't recommend holding your breath waiting for them to reinstate it. At best it's going to be a long wait. A long, long wait. Probably until never. Believe it or not you can actually buy a couple of issues that are still paying the dividend almost as cheaply. I've mentioned GDPAN which continues to pay it and is a par 50 trading near $8. Only slightly more expensive than the MILL preferred issues. SDRXP has been rallying back from a selloff but is still cheap for a par 100 trading at 32. Actually it's cheaper than that after you deduct the 4.25 dividend they will announce soon.
Just sent out a rough article draft to Panick Report subscribers (yahoo mail mrpanick for info) on another cheap preferred issue. This one is trading at 16 cents on the dollar and is current on the dividend. Company has 725 million in liquidity and is still paying a dividend on the common stock. No debt maturities until 2017 and those are likely to be extended. Yields over 30%. Dividend deferral is very unlikely since it can be paid in cash or shares of common. Look for the article out on Seeking Alpha in about a week. There are still much better choices out there than MILL-PC / MILL-pD.
MILL owes 175 million to Apollo and is paying close to 15% on it. A deal with GRH for disposal wells is unlikely and would at best raise a few million.
I follow GRH-PC. GRH has about 15 mil of liquidity on a really goof day. MILL owes 175 mil to Apollo. The idea that GRH is going to bail out MILL is ludicrous.
The terms of the revised Apollo loan were not that bad until the last round of waivers from Apollo substantially increased the interest rate (including the PIK interest). I agree with you though that they did miss their chance. When the stock was at $8 they should have refinanced with 8% bonds (maybe thrown in some warrants or made them convertible to keep the rates down). Management believed their own story and was very reluctant to dilute the common. They believed that paying very high interest rates was better than dilution.
Yes, I expect that KeyBank will get paid off. The problem is that interest costs are going up even with debt decreasing. Compare costs of capital at MILL to GDP or SD (both of which sold 2nd lien notes at par recently) and its clear why MILL is in a much deeper hole.
Thanks for the numbers Sam. The problem is that if you look at the oil revenues (excluding Badami, NF and hedging) it's taking them about half a quarter just to pay the elevated interest payment on the Apollo loan. Meanwhile GDPAN just announced the preferred dividend today (contrary to what some expected).
So Apollo is "nurturing them back to health" by charging them 15% interest? In the old days doctors used to bleed patients. Maybe Dr. Apollo is using the same quack medicine. Global Hunter's mission is to find a way for MILL to get rid of Apollo. None of the MILL issues are going anywhere until that happens.
MILL might have some life yet as a trading stock. Not paying the preferred dividend gives them more time. They are still in a tough situation though with Apollo charging them interest that would make Vito the loan shark blush.
The long term value is just not there though. Take TAOIF for example. Market cap is 75 million but they have no debt and some cash. Enterprise value is less than 50 million after netting out cash. MILL has a lower market cap but the enterprise value is well over 200 million (even if you pretend that the preferred stock disappears or takes a swap for common at 20 cents on the dollar). Revenues and infrastructure are comparable for MILL and TAOIF. TAOIF has much lower production costs (see my recent Seeking Alpha article). Both companies can sell natural gas at favorable rates.
Net debt is about 5/6 of the total enterprise value. You see them debt free shortly? Perhaps you meant to post that message for another stock. TEU certainly isn't going to be debt free and paying a dividend anytime soon.
Banks love to talk about their direct impact from a Puerto Rico default. The direct loans to Puerto Rico are just the tip of the iceberg. What about loans to third parties guaranteed by PR? Might property values and investor confidence be effected? How much direct and indirect exposure do they really have? A lot more than is priced into the stock. Is a PR default priced into earnings estimates? I doubt it given that PR muni bonds just lost half their value over the last few days.
From May 1st article on bond buyer:
Puerto Rico Gov. Alejandro García Padilla, stung by the defeat of his plan to increase revenue with a value added tax, ridiculed the idea of defaulting on the island's debt. At the same time, he called for talks with creditors.
PR Govt Development bank bonds now trading below 25 cents on the dollar and have lost half their value over the last week. Think a default by PR won't hurt BPOP that much? Think again!