Nice run after maintaining the credit base. However the collateral value is scary. Going further the stock price should be capped at today's range because they may need to backstop asset sales (or lack of) with secondary's.
The "guy" who ignores the bigger story but likes things in distress. His only metric is strictly present value over previous results. In the past he has been bullish on Enron, Worldcom, Fannie/Freddie, Lehman, 2007GM, Oil at $80, BRIC/ETF 5% from the high...So why wouldn't he like VRX this weekend?
Risky indeed. A lot seems to be hinged on the Bourbon business. Inventory is a major investment. If it doesn't work out and cash conversion slows they would need to issue more stock. The market seems to be forecasting that as a likely hood.
They are not incorrect in marketing Whiskey to millennials. However, no disrespect to the second President, but the brand name "Jefferson" isn't exactly one that stands out on shelves, especially if next to Jack or Beam. Also a google search doesn't show any brand activity on youtube, FB, or Twitter. Needless to say i have my doubts as well.
You might disagree, but supply/demand dynamics in natural gas could dramatically change within 18mos. If that happens it could take CHK to $15 bad balance sheet and all. You have that possibility, and the current one, which is shorts have piled on this to the point where 80% of the real float is borrowed. That float has turned 1.5 times since Wed. It might take 3 turns to wash out. Along the way you could get momentum bulls bidding up the price further. I don't see this as a "value" short as you seem to.
It gets even more interesting when using market value of debt and preferred rather than par. Market value of the enterprise may not even break $4b for CHK. I would assume that the PV/10 is $10b alone. So for $4b you can pocket $6b by liquidating the reserves, and make the OKC campus headquarters your home.
His L.P looks to be levered 4 to 1. If he's forced to de-lever (raise cash) he would have two options. Either sell more units to the public, or cut holdings. With IEP tanking today early chances are that the latter is more likely. One thing I find interesting (again) is the news flow timing on all this. Two hours before those $2 puts expire! Is this an attempt to "play" a little defense?
Citing leverage relative to losses on holdings
To be clear, you think that they would rather not use "precious liquidity" than execute the above scenario? If that plan were executed you essentially banish $6b from your book by simply shifting bond debt into bank debt. The $500m in annual interest rate savings will then go towards paying down the revolver. BTW without $6b the debt ratio covenants naturally get a lot looser. Now what would this mean for the stock? If you can eliminate $500m in fixed cost, or $.75 per share on a stock that's trading at $1.60, it's safe to say that the stock might go up a little...even in this climate.
In theory they could tender the debt for cash from the panicked market at $4b by maxing the revolver. In doing so they free themselves from a net ~$500m in annual interest
Not including next months maturity, I believe that the corporate debt is trading in aggregate total of around $2B. Depending on how in love he is with the assets - he could tender offer the notes for maybe $40 and still haul in majority of it from a spooked market.
He filed a 13d so by rule any transaction that results in a greater than 1% (plus or minus) change in stake he would have to update immediately.
Without S&P prop its maybe $1
A 2012 PR announced a partnership with a small distillery that would distill and age Sam brews set for release in 2015. Anyone know if this came to market, and or tried it? Also A Nov 15 Boston Globe article on a co- founder that also has a collaboration with Sam to distill rare brews into whiskey's.
Just wondering if Sam is going to jump into craft spirits by buying one or both of these distillery's? The background of the new CFO suggest broader investments.
It's best not to listen to what Goldman says but pay attention to what they do. And what they did was sell their stake into and after the IPO a few years ago in the $30s.
Interesting that even after slashing the dividend by 75% management still wants the public to use DCF as the proper metric, particularly their numbers. These guys want to tell you that maintenance capital is strictly fixing leaks and replacing worn valves but in a world where reserves deplete, and new technology changes economics of others the movement is as ever changing. Like all business's maintaining share requires a necessary cost. You wont see "through put" share gauged in annual reports but that's the goal otherwise they would not defer the dividend for "growth" opportunities...Anyways in the long run a stock always drifts towards its intrinsic value.
I heard recently that the 40 year average yield on the 10 year is 6%. And that's with the past 15 years of sub 3.5%. it can be debated all day if the move towards hihger yields in underway. But higher rates for KMI and the like are a two-edged sword. First, the future cash flows are discounted at lower multiples, and second, rolling over debt at higher rates puts further pressure on cash flow.
I just spent some time doing a little DD on this and think I'll take a pass on this for now. You can SIMPLIFY to get a rough free cash number put a few different discount rates on it and conclude that there's not a lot of margin of safety.
i highlight "simplify" because after listening to CC's and presentations I get a sense that management isn't comfortable with simplicity. maybe it doesn't make the numbers work? I mean besides their constant telling us that DCF should be the proxy for free cash flow - the CEO states that their "growing" in a bad year, but fails to say that it's driven by aquisition, or the CFO saying that change in revenue isn't a good indicator of operations?...