After all the drilling, the revenues are just going down and down. Amazing how horrible management is. Then take a gander what they've paid their BK lawyers so far, or the company's charitable gifts (why???) or their use of Netjets. I'm going to be sick...
DD = Due Diligence (i.e. research on your investment)
Ham, you ask why the price of the Preferred is so low. The answer is simple, it looks like the they will be wiped our in the BK. Is it possible they will recover to full value? Yes. For example, General Growth Properties (a shopping center REIT) filed for BK in April 2009. During BK, it's subordinated debt traded as low as .01 on the dollar. GGP exited BK in Feb 2010, and the subordinated debt paid out 100c on the dollar, or a 10,000% return. Even the common stock survived the BK. This all happened because Brookfield and other real estate investors saw value in the GGP assets beyond the total debt, and made big equity investments in GGP to get it out of BK. It is possible (but not likely) that the same happy circumstance could happen at GMXR, but I'd put the odds of this to be quite low. Good luck.
There are a lot of interesting variables here, Endeavor being just one of them. The Haynesville property is interesting -- you can look at current gas prices and say the whole play is uneconomical and not worth very much, or you can say that when LNG export terminals get built (and supposedly GMXR's land is closest to the proposed locations) in a few years, the land is going to be worth a ton as NG is selling for $9-10 in Europe and $13-$18 in Asia. Niobrara could be a bust a worth very little, or it could hit and be worth a significant amount of $. Bakken is also interesting -- does the steep decline rates we've seen mean GMXR's land isn't in the "fairway" (Wist's term) or does it mean that GMXR is a very inexperienced and inept shale oil driller, or some combination of the two?
As I've disclosed before, I only own the 2015 bonds. I'm sweating hard, and think several things need to go GMXR's way for the asset sale to cover 50-100% of these sub bonds. I think EVERYTHING would have to go GMXR's way for the preferreds to see much recovery, and I'm afraid the common is without hope absent a miracle.
All this means is that the limited liability company Endeavor Gathering is not itself part of the BK. However, GMXR's 60% interest in the LLC is a corporate asset of GMXR and of course is subject to sale as part of GMXR's BK estate. Just like if GMXR owned 5% of XOM (that would solve all their problems!), that wouldn't mean XOM goes BK too, but GMXR's shares in XOM would be part of their assets in the BK estate.
This and other interesting history, as well as the proposed timeline for the auction of company assets (50 days to propose bidding procedures and have them approved by the BK court, and then 75 days to conduct the auction) are described in the Decl. of Michael Rohleder (document #6) in GMXR's BK docket. Follow the link in the company's press release about further information and you can get to the docket. I tried to post the link, but then Yahoo deleted the Topic.
I think wist is basically correct, GSO/Blackstone has all the cards. My guess on how the deal plays out is: This week (by April 4th), GMXR announces they've reached a deal on a "prearranged" BK plan with GSO. GSO will provide $25M or so of DIP financing, and will put forth a plan to "impair" (they need to accept some impairment so they can "cram down" the plan on junior bonds) their 2017 debt by reducing the interest rate and extending the maturity in return for 95% equity in New (i.e post-BK) GMXR. The plan will provide that the 2018 2nd secured Notes also have the interest rate reduced and maturity extended. The 2015 sub Notes will receive about .50/dollar, and maybe 3% of new GMXR stock. The Preferreds will get 2% of new GMXR stock and maybe some warrants. The common shareholders will maybe get some way out of the money warrants or maybe nothing. The $25M DIP financing will be used for GMXR to operate in BK for a few months while the company is put up for sale (since the 2015 Noteholders won't quietly accept .50/dollar, and $10M of those Notes are owned by a multi-billion dollar distressed debt hedge fund that can hire good attorneys). If no sale can be made that is better for everybody then the GSO plan (i.e. over $400M), the GSO plan will be accepted by the bankrupty court.
Joe, in the recent past you've made very specific estimates of the values for all of GMXR's leases/assets, coming up with estimates in the $600M range. While GMXR doesn't appear to have the requisite capital to develop the leases themselves, that shouldn't impact the value of the leases to a well-capitalized buyer. Are you now reconsidering these estimates? PV-10 only deals with proved reserves, and most of GMXR's Bakken land and 100% of Niobrara isn't proved -- but that doesn't mean it doesn't have value (in a bankruptcy or otherwise).
If you are reconsidering your estimate, it would be a favor to the board for you to go back to your specific area by area estimate and put your new values on the assets, and see what they add up to.
That's just proven reserves. What about all the undeveloped leasehold land in the Bakken and Niobrara? It's got substantial value, even though it's not in the PV-10 number. I doubt it's enough to get any value to the common or preferred, but it does have substantial value. Don't forget about the pipeline interest as well, worth about $50M that's not in PV-10.
I noticed that too. It's not very big $$ (44,000 shares at $3.50 = $154,000), but maybe it'll be the start of something.
It's $79M to redeem the preferreds, not $45M. See below from most recent 10Q:
9.25% Series B Cumulative Preferred Stock, 6,000,000 shares authorized, 3,176,734 shares issued and outstanding as of September 30, 2012 and December 31, 2011 (aggregate liquidation preference $79,418 as of September 30, 2012 and December 31, 2011)
Any likely restructuring is going to involve a "Change in Control", which would require redemption of all the preferred at par EXCEPT if that restructuring took place in a bankruptcy. That is why IMO GMXR will be forced to file BK. Maybe the preferred will get a couple bucks, maybe nothing. GMXR needs cash, and whoever supplies it is (1) going to want to own most of the stock, and (2) sure and shoot won't be in the mood to pay the preferred stockholders $79M for the change of ownership.
The key question is, why is GMXR's previous production so poor? Is it bad acreage, or bad drilling? If it's bad acreage, we're all done.
This was seen and discussed on the board two days ago when the filing was made by GMX. Distressed sales of oil/gas properties haven't been going so well lately (see HESS's sale announcement early today, although it was Eagle Ford shale, not Bakken). Hopefully GMX can pull something off here that brings some value to common/preferreds, but the environment isn't great.
Frankly, doesn't look like a pre-pack to me, because the disclosure only mentions discussions with the 2017 bonds (and not the 2015 or 2018 bonds). In a pre-pack, all creditors have to agree to the plan so GMXR would be talking with all three bond issues. I'm not sure why GMXR isn't talking with the other bondholders -- if they were smarter I'd say they have something interesting up their sleeve, but maybe they're just being their normal selves...
I've never seen "we've been too busy in negotiations" to be a reason why a 10-K cannot be filed on time. It's usually something unforseen and out of the company's control. I don't think the SEC is going to like it one bit -- when you're a public company, mandatory disclosure deadlines are not to be missed because you've been "too busy."
I hope Jefferies can help GMXR get some type of fair deal for it's various security holders, in spite of management's incompetence. GLTA.
Be careful about characterizing preferred shares as a "mortgage". While preferreds have many characteristics of debt (fixed interest rate, par value), in a bankruptcy they are equity and not subject to the same rights and preferences as debt.
Starting with the premise that Kenny's main goal is to continue to be CEO and draw a nice salary, one option he may be pursuing with Jefferies is a sale of (i) the Bakken, (ii) Haynesville, and (iii) pipeline. The Secured bonds don't prohibit asset sales, they only provide that the proceeds of asset sales have to be offered to the secured bondholders to repurchase their bonds at $103 (see section 4.16 of the secured note indenture). If GMXR can raise $400M by selling these three assets, they can use $375M to pay off all the secured debt, and have $25M left over to start drilling the Niobrara. If GMXR management believes what they've said in presentations, they think the Niobrara could eventually be worth more then their Bakken holdings. This allows Kenny to still play oil company CEO, at least for a couple years until the 2015 bonds come due.
I owned some Strategic Hotel preferred stock that went down to about $2 in 2009, and now are trading at $25 plus they paid all the skipped dividends about 9 months ago. However, Strategic never missed a bond payment. GMXR is either going to be sold outright withing the next 20 or so days, or restructure or be sold in BK court. Muddling through like many REITs did is no longer an option.