I would agree that a stock offering now is about useless to consider. I have no information to indicate they need capital at that level of emergency. The more likely last-ditch capital raises are sale-and-lease-back of facilities. As that is essentially removing collateral that backs the secured bonds, those have to be carefully arranged.
Obviously the market is acting as though the Q2 cash burn was awful and the cash situation is dire. A lot of people figure that means the info has leaked.
I suppose that if Apollo gains a controlling interest they might try to negotiate a favorable conversion to stock, right now. I don't see that working though. It would not really clean the books up enough to allow for capital market access thru new bonds, and with the share price depressed, issuing new shares would make any further stock offerings unpalatable.
Two things are going on. One is the bond position, which is being interpreted as a plan for an insolvency. And there is no news since the Q1 report, which failed to identify a timeline to solvency, and failed to say if that nebulous path would be with or without stock offerings.
Put those together and the spin is that Molycorp had a bad Q2, they are crawling to the banks and still not getting loans, they need cash, they are further behind the (unstated, but December hoped for) timeline to full operations ... and Apollo is looking for the debt to takeover the company in 2016, when they default on the 2016 notes, and that debt has a lot of control. The 2016 has no special status in bankruptcy court, but they might have the control of how and when to force that event. A finger on the trigger so to speak.
I don't see that spin as particularly solid. It certainly fits the record of quarterly performance and secrecy around bank credit that Molycorp has had.
Even if Molycorp is struggling and unable to get credit, I oppose any conversion of the 2016 notes to lower conversion price and later maturity. Say that the notes were bought at 65% of value ... so the notes get the option of exchanging to new notes with total value of $230 million. By paying 35% in ($80 million), the note value (market 65% + new cash 35%) is a stable $230 million of debt on the books. But the new notes would convert at $2 instead of $50 (IIRC). And probably the interest would go up over 35% ... from 3.25% to 5%.
I would not like that deal, even though it brings in $80 million. That example was sloppy, and I'm not fixing it now.
No, the 2020 trade at closer to par than the 2016. That debt has primary status. It has the first claim on cash from a bankruptcy proceeding. As such it has a pretty solid collateral, and is valued much higher.
The conversion price is awful for the 2016 bonds (IIRC). Conversion simply won't be profitable.
The Plan-A that makes the most sense is buy a bunch of the bonds, then either make sure they get paid back, or that solvency makes re-sale a nicely profitable action.
Plan-B would be to actually put additional money into the company, with a return on that investment amplified by the return on the bonds in the now solvent MCP.
Plan-C would be to have a controlling interest in the 2016 bonds when they are due to be paid, and to use the likely inability to pay to hold up the company for some 10% convertible bonds as payment.
Plan-D (the common media theory) is to have a controlling interest in the 2016 bonds when they come due, and to block any deal but a cash payment, while using backdoor pressure to block Molycorp access to capital (who you going to deal with: Molycorp or Apollo?). The with the notes due and no money, they force the breakup of the company, and with a better RE environment and a low asset fire sale/ bankruptcy value, they hope to put up a little money and walk out with the company.
Basically, if they have a controlling interest in the 2016 notes, they can force a favorable outcome in 2016. Either they get paid cash immediately then, or they get something of value. Worst case is if Molycorp goes insolvent and enters bankruptcy protection courts. Then the secured bonds have complete control.
Borderline insolvent: best
My guess is that they see Plan-C as the most positive outcome. Plan-D, the debt-fueled takeover has too many moving parts and has another interested party, the secured debt, that has a LOT of power. The secured debt might even block a Plan-C, although a deal with massive conversion is irrelevant to the secured bondholders.
I think management stated they did not expect to need to raise equity. Which was generally not well greeted since they also refused to state when they would actually make any money. The two statements are contradictory:
"we don't need to raise money"
"we are unwilling to promise making any money"
I have agreed with the theory that the time to raise money is PRIOR to the Q2 report, which should be in the 2nd week of August. If they cash position is bad after the preliminary accounting summary, then raise the money now, rather than in Q4.
So right now is the moment of greatest unease. A stock sale could happen. Q2 is in the past, and the books are being balanced. The cash balance is probably on the dashboard of the CEO at all times. As is the current progress to making money. He has to make the call if or when they need cash.
Silence is not good. But even worse was non-informative talk, as they practiced at the CC.
The previous management under Mark Smith constantly over-promised and under-delivered. They were even investigated by the SEC about potentially misleading promises. The current management has clearly adopted the mantra "make no promises". They really won't say anything. That was what got Mark Smith tossed.
I am merely wrong in an investment. Good for you for never being wrong. I really don't need a scoreboard on the MB. Everyone has their own scoreboard ... look at your account balance.
We can all make arguments here. You can then use those or disregard those. You should only invest on your own conclusions. If my arguments make sense, and you decide they are going to be part of your decision ... go for it. But make up your own mind. I've lost money waiting on a turnaround in MCP. Do your own DD. If part of that is name-calling on Yahoo MB's ... again, go for it. I advocate for more civil posting but I have a thick enough skin to take it.
I would love to know what the Apollo plan is. We know they made an investment with a plan to make money. I simply don't see the logic that they are going to get a big payoff by forcing insolvency. The secured bonds have to much leverage.
I don't see the current info as pertaining to a bad Q2. The leverage moment for the 2016 bonds is in 2016, when Molycorp doesn't have the $230 million to repay. At that moment they have some leverage to try and get the company to offer some exchange that is favorable. Bu the secured debt has a lot of veto power on any such deal. And that is 2016. The Q2 numbers matter for the cash on hand situation, deciding if the company needs money.
The management left the shareholders up the creek when they refused to project a time for when the company would make money. The ambiguous business plan to make money someday doesn't cut it when there is a limited amount of cash on hand. That does make each Q result very critical for shareholders. Either they can make it to making money before selling stock or they can't. And they really aren't saying.
I do have to wonder if Apollo has a plan to sell on a return to solvency event. If Molycorp sells stock, the bonds go up. If the Q2 results make selling stock a necessity, then yes, a leak makes the bond buys a short term play on solvency.
But I don't know the plan, of course.
They would not be buying the 2016 bonds as short protection. Those are the highest conversion price (IIRC). Anyone that checks that conversion price can correct me on that.
The best protection is to buy the ones that convert at $7.20 per share. Buying those at a 35% discount is the same as having shares backstopped at $4.68. And if the share price remains low, and the company pays the bonds, you make out two ways. You are protected from a squeeze, as you have the bond conversion backstop. And if there is no squeeze, you cover for a profit when you want, selling or holding the bonds.
I don't ignore the risk that MCP stock will be wallpaper. But I think the most likely outcome is that they make profits. I've dismissed cerium for a long time and been looking for Nd/Pr as the metals with value.
Lynas and Molycorp have been trying to get to market for a long time, and everyone knows that new supply will perturb the market dynamics. It is unlikely to be the price disaster that so many have predicted. This supply is expected and rare earth demand is growing, and will absorb the supply, with the prices dropping slightly, for only a short time.
It makes no sense to talk about the recapitalization that buries longs. There is not an imminent cash crisis, as portrayed by SA. If they lose too much cash too quickly, and don't arrive at profits, then they need more cash. But that is not as certain as all the predictions are making it out to be.
The bonds in question have no leverage until 2016. The interest on them is trivial.
The real question remains: can Molycorp execute the business plan? Before they burn current cash reserves?
You are right. My exposure to Apollo was via some high yield funds that were apparently atypical. It looks like Leon Black likes to acquire via bonds and flip for a profit.
I don't mind being a little bit ignorant. It might surprise you to learn though, that I am regarded as unusually informed on a wide variety of subjects. But I certainly don't know everything. This is the one use of the MB's I truly value is when I say something I recall, and then it gets corrected. I verified what you said and it is right.
Apollo wants to be paid interest for 2 years and then be paid $51 million. They win if Molycorp operates profitably, as do longs.
The secondary you propose is only necessary if the company needs money. That is NOT a known. Currently we know they had $236 million cash on March 31st. If they underperformed badly in Q2, they still would have a lot of cash at this time.
Molycorp has usually raised cash sooner rather than later. So it is reasonable to wonder if they are considering it at this time. But then again if they did not underperform in Q2, they would have quite a reasonable amount of cash on hand. Enough to consider another cash raise unnecessary.
Apollo makes money if Molycorp turns profitable. So do longs. Apollo is unconcerned about stock offerings, as they add to the cash available for Molycorp. That allows for further time for profitability.
Apollo gets VERY little in bankruptcy. In that case. Molycorp has to have no cash to pay the bills. The only assets are the idle facilities, operating under bankruptcy protection (in the US, Canada, China, and world wide laws). After a while, a bankruptcy plan would be calculated. The maximum Apollo would get would be $51 million. Since bankruptcy judges allow the bondholders to bid on assets, there is some leeway to get more value, but the shareholders have a tertiary claim.
Apollo will make more money with the survival of MCP. Apollo has bought $51 million par value if bonds for $35 million. It isn't anything close to control, call it 8% of the unsecured half of the total debt (and the secured half calls the shots). That investment pays $1.6 million interest per year, and pays $51 million in 2016 (about 2 years away).
This is a long investment in Molycorp bond plain and simple. Apollo is a high yield bond investor. It is what they do (I've owned Apollo funds, look them up, AINV was one I used to have). They don't look to take over companies.
If Apollo owns 22% of the $236 total bonds at a current 18% yield, they have bought about $51 million (par value) at a discount, paying about $35 million. They will get about $1.65 million interest per year thru 2016 (4.7% APR), and then get $51 million as the bonds are paid. The stock conversion option on this series is at a lower share price, so when the stock goes up, they offer additional gains.
In the event of bankruptcy, Apollo has $51 million of claims, out of a total $1300-plus million in bond claims. So they have VERY little chance of gaining control. This story is a long investment , plain and simple. If they were seeking to buy a controlling interest in the $650 million of secured debt, then YES, then you could argue they were angling for control in failure.
This is pure malarkey to spin this as an attempt to gain control in bankruptcy. The numbers simply don't add up. They have less than 2% of the bond debt, which is secondary at best. hen you try to gain control via a forced bankruptcy, you buy imminently due bonds, with a controlling interest, and try to force repayment, ad block re-financing. I've seen it done in the market, and this bond buy is not in that category.
This is one of the wilder lies about MCP. It is from anonymous sources claiming to know the motivation of Apollo, and claiming the motivation is to gain control of Molycop, by buying 2% of the debt.
Let me assure you, I spoke to anonymous sources that say completely the opposite. (Well it was coded, this dog was barking outside, woof, woof, etc ... But I knew what it meant).
Apollo is buying bonds because they think MCP will urn the corner and the bonds yield 18% at the current discount, and if the stock goes up, they have a stock option via the conversion.
Yet the article has these gems:
"In a default, those bondholders would have leverage in determining a restructuring plan and have the possibility of taking control of a reorganized company because they wouldn’t be receiving a full recovery on their investment"
"Standard & Poor’s estimates that Molycorp’s other convertible lenders will recover as little as 10 percent in a workout"
"Apollo believes holders of the convertible notes won’t receive a full recovery in a default, putting those lenders in control of a restructuring and in line to take over the company’s equity, the people said."
Huh? How does a default with a lack of assets benefit unsecured bonds again? It doesn't. Those bonds are an extremely good return if Molycorp survives and an extremely bad return if Molycorp defaults. Unless of course Apollo likes not receiving a full recovery, but you know, gettting 10% or so. And not having the leverage because, you know, these are unsecured debt, behind the secured debt.
My post was mostly to not use a topic started by CB for any meaningful response. I don't mind reading his posts, although I want to read them where their deletion does not create the same hole in a message board.
The deletion of a thread a day after it started was what I found intolerable. CB started a thread on July 3rd, and it had a fair number of posts in it, and he deleted it on July 4th. I don't lament the removal of CB's posts ... they were incorrect. But I do think that it means that anyone who read it and contributed to the subsequent discussion was short-changed.
I just clicked the cb_cb480 link, and currently he has 5 posts. Which means that he has deleted every prior post. Which means that if you had a post in response to his post, that post is now invisible. If you want your posts to be out there (right or wrong, we all are often foolish and errant), then you have to not put them into a CB response.
I don't bother with the "ignore" feature. I just don't bother to click on topics that are likely to be of little interest or use to me. A post that gets deleted and bollixes up a thread is an example of a useless post. Since CB has deleted all but 5 posts, only those 5 could possibly be useful, and they will get deleted soon enough.
By all means read what he says. If he says something that is insightful then consider it. Just don't expect that his posts can be part of any meaningful time-extended back-and-forth exchange.
I don't bother to click on the posts by the current ID ottohuber76 ... the current pseudonym of an over-posting short. I don't post in those threads. I don't read them.
CB_CB480 has also been next to useless as a poster. But I've usually read the thread topics as the various other longs that also choose to bypass the shortside threads have few front-page threads to comment in.
Now he's started deleting the topics he starts. Which bothers me because I had an open question in his last one ... I post as many questions as opinions, and I like to see what people think. If anyone had a particularly cogent point in a CB thread, it is gone to the rest of us. So please DON'T put those cogent thoughts in a CB thread. Start a new topic or put it in a thread by someone who doesn't delete.
Yes, you are correct. That is a line from the Reg SHO Daily files of short data, not the Reg SHO restricted list. Every stock is on the daily list of DATA.
I've looked at the daily data before and I can never make sense of it. They have data for 4 exchanges.
no MCP data
The format is:
Date / symbol / Short Volume / Short Exempt Volume / Total Volume / Market
What never makes sense is that the sum:
370320 + 1727181 + 88524 = 2,186,025 total volume
Yahoo's historical price data shows the 3rd with volume of 4,598,300. I've extracted data from the Reg SHO daily files and it never is the right total volume. The data is only regular market hours. Half the volume might be trading on other exchanges.
If you understand this date, I would appreciate any explanation. I always like data, but I don't know what I need to know to understand this data. Looking at FINRA, short sale exempt is arbitrary enough to ignore ... uptick rule is the most likely reason, so these may be short sales at the ask price rather than at the bid.
70700 + 553296 + 58591 = 682,587
If the short sales volume is correct (and I don't see a record of covering in this data), then the 3rd was about 31% of the sales were short sales. But again, I don't have a grasp on this data. I have looked at it before, but the basic volume issue makes the data necessarily incomplete.
Anyone with help?