As I mentioned in a prior post, dilution, especially at current share price was a bad idea. Unless, of course, they have debt they need to extinguish in the near term and they had no other way to raise cash to meet the debt payment. AUY needs to come clean in their conference call on exactly what debt is outstanding. In their last presentation, they published a debt chart with the following figures:
Per Yamana Slide
No mention of the term facility in this slide. You have to dig through their SEC filings to find the term facility. Today's press release mentions reducing debt under the revolving credit facility, but that is not due until 2019, well after the term facility. AUY's information, or lack thereof, does not make much sense when reviewing their debt portfolio.
AUY has more debt than is apparent from AUY's past presentation. Specifically, they have a $1BB revolving Credit Facility due 3/31/2019. They also have various Senior Notes Due between 2016 and 2024. Most of this debt is weighted toward 2019 and after. However, the facility that does not get much mention is the Term Credit Agreement (see below). This facility matures in 16 months and may be the facility targeted by the equity raise.
"We entered into a term credit agreement dated June 12, 2014 (as amended, the "Term Credit Agreement") pursuant to which a syndicate of financial institutions granted us a $500.0 million term credit facility maturing on June 13, 2016 (the "Term Loan"). "
Consolidation is the name of the game across all sectors of energy (drillers, oil services, mid-stream, etc.). I would not hazard to predict the price of oil in a year, but it is prudent for companies to prepare for low oil prices for an extended period of time. Scale and efficiencies will be necessary if $50 ppb is the new norm. If oil returns to 100 ppb, scale and efficiencies just increases your profit. RGP has nice synergies with ETP, the price paid is certainly not excessive and there appears to be no issues on the debt rating side.
I also own KMI. They did a $3BB acquisition last week and are looking for more acquisitions. There are very few visionaries in the executive suite, but Richard Kinder is one of them. Following in his foot steps via acquisitions is not a bad strategy. You buy when assets are on sale, and assets are certainly on sale in the energy sphere. I applaud ETP for being one of the first movers in acquisitions. It would not surprise me if ETP eventually ends up consolidating all its assets under one banner and becoming a C corp like KMI. That might explain some of today's sell-off, but if KMI is any indication that should be short lived.
Unless gold sky rockets in the next few weeks, AUY is not going anywhere until earnings in Feb. and some elucidation on the c.c. on why they thought diluting shareholders with share price at $4 plus change was a good idea. There is no confidence in management at this point, and no coherent strategy articulated by AUY. Hopefully the c.c. will better explain the dilution and how it fits into AUY's strategy for the company, but I'm not expecting much on that front.
The Saudis have the best military money can buy, but they use it to keep order in Saudi Arabia and would only use it if attacked by another country. The Saudi elite watched the Arab Spring and they want no part of stirring up a hornet's nest in their own country, or attacking any group that might get them in a shooting war with Iran. They are very good at playing all sides against one another without firing a shot. They are very comfortable having their American "allies" keep the peace in the Middle East while petro-dollars fund the export of Wahhabi Salafism throughout the world.
The Headlines out of Yemen are pretty disturbing. You have a very unstable country, that is about to become more unstable. WSJ labeled it the next Afghanistan, except this Afghanistan happens to sit right next to Saudi Arabia and harbors all the al Qaeda ex-pats that were booted from the Saudi kingdom. To make matters worse Yemen is at a choke point between the Red Sea and the Gulf of Aden. This will take some time to evolve, but the perennial unstable Middle East just got more unstable when President Hadi fled the palace whereabouts unknown.
My numbers are from KMI's most recent presentation. It is in the investor relations section of the site. I took the numbers verbatim from the presentation.
KMI indicated the following on oil production:
commodity price sensitivity is ~$7 million per $1/Bbl change in crude price (~0.086% of total segment EBDA)
Therefore, in doing your calculation, only 36% of KMI's oil production in unhedged and the remainder is hedged at $91.
Agreed. The press release leaves a lot to be desired, especially when juxtaposed with prior press releases:
1. Significant new discoveries at Chapada and El Peron
2. Malartic being the best thing since sliced bread (hence the bidding war)
3. Separation of core and non-core assets
4. The "gross miscalculation of actual value" by the Argentine arbitrator
All of the above, implies the company is firing on all cylinders, has no immediate need for the cash and should have enough organic growth to manage long-term debt. So why go out and do equity raise when your shares are priced at 1/3rd the value of your 52 week high? A very dilutive way to "reduce debt and strengthen its balance sheet", and not the first time AUY has embarked on a dilutive strategy. If this statement is just a ruse and they are actually planning more acquisitions, I would suggest AUY holster its wallet and concentrate on organic growth of core assets and growth of recent acquisitions.
Actually, she knew a lot less than she was reporting. The "Senior Notes due next week" were redeemed several years ago (see below from the annual report). SD may have an interest payment due, but it is not a "Note due" as reported by CNBC.
The 8.625% Senior Notes due 2015 and Senior Floating Rate Notes, prior to their purchase and redemption in 2011 and 2012, respectively, were also jointly and severally guaranteed, on a full, unconditional and unsecured basis by the subsidiary guarantors. The subsidiary guarantees (i) rank equally in right of payment with all of the existing and future senior debt of the subsidiary guarantors; (ii) rank senior to all of the existing and future subordinated debt of the subsidiary guarantors; (iii) are effectively subordinated in right of payment to any existing or future secured obligations of the subsidiary guarantors to the extent of the value of the assets securing such obligations; (iv) are structurally subordinated to all debt and other obligations of the subsidiaries of the guarantors who are not themselves subsidiary guarantors; and (v) are only released under certain customary circumstances. The Company’s subsidiary guarantors guarantee payments of principal and interest under the Company’s registered notes.
Actually, there is a law that addresses when you may file in bankruptcy. Section 1129 (b)3 provides that every plan "be proposed in good faith and not by any means forbidden by law". Courts that have interpreted this provision have, for the most part, held filers to a high standard of good faith before allowing a filing to proceed. Otherwise, bankruptcy courts would be clogged with all varieties of debtors seeking to use the court to avoid payment of legitimate debt. In the case of SD, with debt not due for 5 to 8 years, it would hard for them to make a compelling case of good faith in bankruptcy with debt not due until 2020 at the earliest.
There will definitely need to be some expense rationalization by all frackers. I experienced this phenomena with the gold miners. When gold was $1800 oz., most miners had cash costs of $1,300 per oz. and all in costs greater than $1,500 oz. When gold went to $1,200 oz., the more successful miners got their all in costs, down to $800 oz. It was amazing how much fat is in organizations when commodity prices are riding high. The smarter miners also sold some high cost mines at fire sale prices. Necessity is the mother of invention.
The frackers who want to survive will go through the same process. SD's current share price assumes a static world, but neither the price of oil or the efficiencies that will occur are static. Companies will do what they need to do to survive. Those that don't will perish. SD's next quarterly report should say a lot about which side SD will occupy. Don't be surprised in a few years if the more successful frackers will be able to make money on $40 oil.
Much loose talk about SD's impending BK. However, BK requires a breach of a debt agreement. Specifically:
1. SD must fail to pay interest on its debt. In 2013, that amount was $270mm. SD has both the cash and cash flow to easily meet this payment
2. SD must fail to pay principal as it comes due. The first date for this occurrence is 2020.
3. SD must breach a debt covenant. In reviewing the debt documents for the 2021, 2022 and 2023 Senior Notes, the following are covenants which SD must following, with certain exceptions (this is a summary of a voluminous document which is part of SD's SEC filing for its debt offering):
a. Limit on additional indebtedness.
b. Limit on restricted payments
c. Limit on Liens
d. Limit on dividends
e. Guarantees by restricted subsidiaries
f. Repurchase of notes on change of control
g. Limit on asset sales
h. Limit on transactions with shareholders and affiliates
Those are the covenants. There are no covenants in these documents which is based on asset write downs, meeting financial ratios or other financial tests that might be impacted by the current price of oil. Talk of bankruptcy seems premature at this point and for the foreseeable future.
NQ can buy back as many shares as they please as long as they follow the safe harbor rules below. Under the current authorization of $80mm and at the current share price of $4, that would be 20mm shares, approximately 30% of the float and about 25% of all shares outstanding. Of note is NQ indicated they issued 26,773,053 shares to purchase vLife, Music Radar, Showself and Yipai. If they purchase 20mm shares they will have covered most of the dilutions from these acquisitions.
Price: The issuer must repurchase at a price that does not exceed the highest independent bid or the last transaction price quoted.
Volume: the aggregate purchases on any given day must not exceed 25 percent of the purchased security’s ADTV (i.e. trading volume). “Block” trades typically will be included in computing a security’s ADTV. However, once per week, “in lieu of purchasing under the 25 percent of ADTV limit for that day,” a company or its affiliated purchasers may make one block trade of its shares without regard to the volume limit, provided that it does not make any other Rule 10b-18 purchases on the same day. Purchases made pursuant to this block trade exception will not be included in computing a security’s ADTV for purposes of Rule 10b-18 volume limits;
Correct. My mistake on currency. However, my analysis remains the same. The deal should be valued at book value, until NQ can articulate a strategy and execution for FL that warrants a higher multiple.
The two largest shareholders of Tack are Liang Wang who holds 28.2% of Tack and Yueheng Chuang who owns 8.16% of Tack. Neither are insiders of NQ.
Based on current information, which is fairly nondescript, the simplest way to look at the Tac deal is to look at Tack's balance sheet as of 9/30/14. When compared to the 3/31/14 annual report, it appears Tack has already taken a write-down on inventory and A/R, presumably from their run-off retail business. Therefore, those numbers should be pretty accurate. Deloitte is Tack's auditors. Although they had some early problems with audits in China companies listed outside of China, those appear to have abetted, and Deloitte's audits have been clean since then.
From there, it is a pretty simple balance sheet with net assets of $120mm, the vast majority in cash. NQ will get some % of this entity, TBD, and it will be the majority % of Tack. In exchange FL goes into Tack and will be the main asset, besides cash, in the New Co.
The advantages to NQ are:
1. An independent trading vehicle for FL listed on the H.K. exchange which will still have consolidated F.S. with NQ.
2. Some % of the cash on Tack's balance sheet.
The unknowns are:
1. What will Tack do about the billions of shares currently outstanding. Presumably, they will be a massive reduction of outstanding shares at some point.
2. At this point, the value placed on FL, strictly from the current balance sheet, is around $100mm, assuming NQ gets 80% of the NQ (just an estimate on the % on my part). Where FL goes from there on a balance sheet income and cash flow basis is anybodies guess.
Until a merger agreement is published that puts some flesh on the deal, that is all you can construe from prior announcements.
Agreed. I'm assuming Mr. Khan prevailed in this matter. Hopefully, they will now give him full reign to run NQ.
It is unlikely NQ will be able to purchase its full buyback allocation at current prices if the shares continue to rise. Pursuant to SEC regs. (see below) there is a daily volume limit on share repurchase. NQ did alluded to block transactions in their press release, and they can purchase additional shares in block trades once per week. Either way, it will be a significant number of shares, but it will be phased in over time at different share prices.
Volume: the aggregate purchases on any given day must not exceed 25 percent of the purchased security’s ADTV. “Block”8 trades typically will be included in computing a security’s ADTV. However, once per week, “in lieu of purchasing under the 25 percent of ADTV limit for that day,”9 a company or its affiliated purchasers may make one block trade of its shares without regard to the volume limit, provided that it does not make any other Rule 10b-18 purchases on the same day. Purchases made pursuant to this block trade exception will not be included in computing a security’s ADTV for purposes of Rule 10b-18 volume limits; and