You need to understand the guys that put the money in (2nd lien) will see 100% on the dollar before the common sees a penny. They basically jumped bump the equity further away....for a higher cost. It replaced bank line money, but GDP burns cash and they are using money that is 100% recoverable versus common.
GDP equity of any sort would not survive a restructuring. Unfortunately I think GDP into GDPAN is "pan to fire".
When you earn LIBOR plus a few points writing a bank line of credit, the last thing you want is a huge legal bill to just get your money back. Bank do not want to start a avalanche of asset sales. They prefer to slowly reduce their exposure and allow the high risk market to fill in the gaps where they don't want....ie. what GDP just wrote.
Credit work by analysts is static. It means they make the assumption status quo will remain. So for GDP and many it's al about staying in business as long as they can to give themselves a chance to survive and bring costs in line with futures price for oil (new lows today). Given enough time and good capital management firms can make it.
Doing stupid stuff like paying out the cash to preferred dividends is not good long term planning....so I wonder now. Not selling MORE stock while the short interest was so huge is another thing. All of these things CAN be reversed if oil rallies next year. So I am giving them a C- on capital management to this point (C vs D because they DID sell some stock).
""Moody's rated them they gave the unsecured a LGD 2 or loss of 10%-30% of principle""
Thanks, I don't believe that, but thanks ;-))
This foolishness of paying the preferred dividend shows that their capital management skills are of retail investor quality. It was a poor showing trying to hide what everyone already knows. This proves to me that something is fishy. You are 100% correct, the stock is so far out of the money they should sell as much as they can to $.000001. They can always buy it back on "the big oil price recovery" (not).
Of course paying the preferred dividend keeps the preferreds higher than they should be and thus the stock higher. It's all "3 card Monty".....doing something real would make more sense to me, but regardless.
Short interest will start to drop as the stock fades into the abyss and the firm will have lost their "forced buyers" as they book gains and move on. Soon no one with give a $#@$ and they won't be able to sell anymore stock. This is such a repeatable pattern working in on this side of the Securities business for so long, it's sad to see.
I talked extensively to Walter Energy (met coal) back when their stocks $8-$9 and their debt was 50% of par. They said their stock was "too low" to consider swaps or stock sales. The debt is now under $10 and the stock $.50, and they are months from wiping out both. It must of been nice in that bubble they were in, like standing in the mirror with a 46 waist line and seeing a 32 waist line.
Having Warren Buffett owning Burlington Northern and getting $2b/year in moving oil around could be a real problem given his political clout. So he gets huge money railing crude to Canada....free-up exporting crude to the World and it starts going out of Houston....no Warren involved.
Thanks, some good advice. Hedging the bonds has been a task....
I see AREX bonds at $94 last sale. So the debt market agrees with you.
I am not really bullish on oil anyway. Hedging allows me to be earlier to the party, but it's getting to be more of a pain than good. I likely will slowly exit all and relook.....well IDK when.
Oil is going to fall apart if the Euro starts trading way under parity with the USD IMHO. It is $1.07 now.
Thanks to the refiners firm hand on the politics of the game, crude exports are still not allowed hence the massive gap in Brent versus a better grade WTI....is my understanding. The strong unions in refiners apparently has more political power then 100's of thousand of guys working on in the oil shale fields. The Shale industry needs to get more political might than take this lying down...IMHO.
Do you have a rough recovery value here?? Your base case for asset prices? TIA
The Euro has correlated very well with oil in the last year (negative USD correlated).
Up until about 4-5 years ago the oil was always considered the anti-USD trade because we imported so much. This went away and has since returned starting in August of last year in spades. Something not to ignore, all oil is still transacted in USD's
""you don't make an offering unless you already have buyers of the stock. you don't have buyers if they think the company is going belly up. what am i missing?""
You should read other messages beside just your own posts. An underwriter can PRE-sale shares a week before and use the stock from the company to cover their short position (no borrows needed).
Likely those that bought a lot of the 12m shares, did so unknowingly a week before as JP Morgan shorted them shares at $4.50.
Just my assumption....as it happens a lot. "spot" secondary is you key word, no over-shorting to support the after-market.
Maybe this might help you. You need to see how Analysts on the Street value distressed firms. They work backward from recovery values to determine a "Fair price". This SOP....it might help you in your preferred buys. I think you are in an excellent area, it's been my favorite for a long time. Being early is your biggest risk. Don't assume that because you wait for recovery you are going to pay a higher price.
Assuming the values today of GDP is $300m (using strip in PV10 reserves calcs).
1) as in all life....Lawyers get paid first...$60m
2) The term loan (assuming $20m drawn) would be paid 100%.
3) The 2nd lien loan at $100m would be likely paid in full, 100%.
4) other super secure claims, like employee salaries, Asset retirement obligation...paid in full 100%
5) now we get down to the those that are impaired, $450m in LT unsecured debts, leases, unfunded pensions, etc.
6) likely zero for all equity.
$180m goes to 1 thru 3 above. This leaves $120m for the rest, likely $500m-$550m in claims.
CONSIDER this a rough example, not an actual analysis.
So if I am trying to figure out how to not LOSE too much if they restructure. It means I have to figure I should not pay more that $120m/$550 or 21% of par for the unsecured bonds. Now as an on-going enterprise GDP is worth more than $300m.....so that is the FIRST bet. Will they make it? 50% of par says yes....the other option is hedge to 20% of par via CDS's or shorts....hence 62% of the float short....and Franklin asking for 4.88 warrants.
I am not saying it won't work although I think the bonds are a better play given "status quo"..they are supported by cash flow at this point at 50 cents on the dollar.
PV10 is pretty accepted in the business and used by the bank syndicates. You can put what assumptions you want. The SEC using $94 oil, the bank syndicates uses a more real price. It certainly would mean something on a sale of PPE. So it has some merit other wise you are flying blind except if forced to use price per flowing barrel and GDP is off the chart using that.
My belief is you wait to buy lower in the capital structure until business improves. There is a common misperception everyone has to get "the low" to brag on message boards etc....but it's about risk/reward and the best reward for the risk is buying when the lower classes start seeing cash to support them. Otherwise you are 100% gambling and since I live off this, it's not a game for me.
I have bought up a lot of distressed oil bonds(VNR/MHR/BBEP/SD/GDP) a few months ago and some did well, others like GDP are flat to up small. Most like GDP, are in the middle of trying to gain more cash to survive longer. This means a lot of dilution....GDP shareholders just saw double, from the new 2nd lien debt and the 12m new shares printed. The leverage is going away fast to the equity.
There might be a great time to buy both GDP and GDPAN. I don't if and when that may happen. At 25% of par GDPAN is fairly well balanced with the bonds at 50% of par. As I mentioned on SRXP, I am waiting for the $30's again to buy if the bonds hang at $65.
curious....other than "buy it, it is going up", do you have anything to say constructive? I am more than happy to listen to some factual material. Otherwise ignore works pretty well.
""by 2016 oil/gas will dramatically recover,""
By buying the stock TODAY, you have already paid for that recovery. You just paid the guy you bought stock from for it. You need to understand why.
It's clear as your article said, if you want to own GDP EQUITY you want GDPAN. You don't want any other.
That said, it is still vastly out of the money cash flow wise so it is a speculation, not an investment.
The debentures were the best bet, with the addition of a possible $175m loaded on top of them is now a problem is GDP continue to use it and burn cash. There are nearly $450m of those debentures.
SOP for buying money losing firms is buy them at discounts to their proposed asset value ( to make up for cash burn). The 10-K based on foolish SEC pricing (TTM on oil, etc) means the PV10 value they state ($644m) is likely worth 50% of that based off strip prices (roughly). Call it $320m. Presently after the assumed pay down of $100m on the LOC with new higher priced 2nd lien, you have call it $120m super senior and $450m at 50% of par ($225m). This equals the creditors are valuing GDP at $120m + $225m or $340m.
This is just the facts, no opinion.
The EV of GDP with the $350m of preferred at par is $1.3b and the common at $3ish. Your preferred is trading at 25% of par or $350m times 25% or $88m. YOU as a GDPAN holder are valuing GDP at $120m+ $450m + $88m=$658m which equals their PV10 values based off $94 oil prices.
It's your money....it's important to know where you stand on these situations and what you need to make you money and what you can lose.
smither, I believe "trolls" comment with no information backing their claims. I don't do that.
I am not "blaming" your ex-wife, or management, it's just the facts when your source of revenue drops 50% in less than 6 months. The tide is out and Mr Goodrich is not wearing a bathing suit.
I more than than happy to see why I should buy the stock, explain in the language of investing, numbers, not your ex-wife's feeling on what going to happen, please.
If your only reason to buy a stock is based on how much is short, you are guaranteed to lose money in the long run. There are solid reasons WHY so much is short and every highly distressed firm I have ever been involved had very high short positions all the way to $0. Even if the firm survives the stock is muted because of all the new shares added and debt added. So you get all the downside and not much upside.....guaranteed losses regularly investing this way.
I assume you and many will learn this the hard way and blame everything else but yourself for your bad decision. Seen it for 30 years in this business.
""boy were they ripped off!""
It is likely the people that bought the $4.15 stock didn't even know it. An Underwriter can short into an offering and use the company stock to cover their short position. They do not need to borrow stock to short it.
the guy doesn't sound more than 16-17 years old. Probably got mom and dad's account number and playing.
Lightstream bonds (PetroBakken USD based) have made a nice move from the mid $50 to $72 now. Trading strong. This needs to happen to get the stock moving unless they are doing debt for equity swaps pressuring the common.