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?
Watch it. If you start putting facts in here, CB will delete the topic.
Is that your idea of EXPLICIT directions? I googled "reg sho list nyse" and looked at that threshold list. MCP is not on it.
I don't approve of most naked shorting. But the Reg SHO rules are uselessly weak, and then the SEC is an agency without much enforcement activity.
"you don't understand the point to the SHO rule..... uptick is a minor issue why not focus on whats really important which is ........ the prevention of any further naked selling and punitive discipline towards all broker dealers involved"
That is not what Reg SHO rules do. There is NO punitive discipline ... the rules say what the punishment is and that punishment is to say "do it no more". It is like you are guaranteed to get a warning when pulled over for speeding ... you get pulled over at 120 mph, and the cop has to say, stop speeding. And naked short selling is NOT a problem anyway, as demonstrated by the fact that MCP is not on the Reg SHO list.
All that happened was the circuit breaker rules applied. The way I see it for naked shorting, if there is a high level (unspecified as far as I know) of failure-to-delivers, then the stock is placed on the Reg SHO list, and a few of the legal naked short trades are made illegal. But since most naked shorting is illegal already ... the list and rules do almost nothing.
Oh, and none of that matters because MCP is not on the Reg SHO list.
And you clearly have no idea how ineffective the Reg SHO list and the SEC are at doing anything.
Naked shorting is always illegal except for certain situations. The circuit breaker rule doesn't change that. I don't see MCP on the Reg SHO list. If you do, point out how to find that list, EXPLICITLY. I googled "reg sho list" and looked at the Nasdaq threshold list.
You should go find just one example of SEC punitive action based on Reg SHO. WHat I see is that when a stock os placed on the list there are a few extra rules, but they don't amount to much IMO. I love the penalty for getting caught naked shorting. That penalty? Oh, you can't short the stock anymore. And the naked short for a daytrade still looks legal by the rules ... shares would be located by the T+3 rule.
The SEC is not interested in limiting this. They are interested in giving the appearance of providing adequate policing with reasonable rules. IMO the point of the Reg SHO rules are to give the illusion that the market regulatory agency can limit naked short sales, if they put the stock on a list (and MCP is not on the list).
I don't think the circuit breaker is important. It puts an uptick rule back in place which only inconveniences shorts. I have not seen the threshold list with MCP on it. That also has next to no effect. Unfortunately.
I don't either, but obviously the "devil's advocate" would argue they depleted cash by $80 million in Q2, dropping the cash reserve from $236 to $156 million, and knowing that they would be better making an SPO before they put those Q2 numbers out.
They either think they don't/won't need cash from an SPO, or they should do it earlier rather than later. If they think that the Q2 numbers (which they will have a solid preliminary internal estimate quite soon) are an improvement from Q1, and they project improvement to a profitable number within the cash burn window they have, then they should not do an SPO. They quite possibly should use other cash raising methods to make sure they have "ongoing concern" amounts of cash.
Those would include:
Borrowing at unfavorable rates, but for short times.
Selling equipment and then leasing back that equipment.
Some other creative financing ... say buy Ucore for a stock swap ... Ucore is a $74 million market cap, so with a 50% premium buy for 45 million shares of MCP. Then use the Alaska $145 million financing in round about way (probably not possible, but who knows).
They definitely don't need the cash right now. But they can do the math and determine what the conservative cash burn plan is, what the optimistic cash burn plan is, and what the options for additional cash are. An SPO in July is one option. Hopefully they decide against that option. Hopefully the Q2 cash burn is manageable, and the progress towards operational targets is acceptable.
Smart buy. There appears to be NOTHING in the news. The volume was high in pre-market and Motley Fool piggy-backed a slam on a Seeking Alpha slam. But those are just the same OPINIONS they always give, with nothing new added. If I had to guess it was shorts trading the "news" headlines. But since there is no news, it will reverse.
We know exactly what we knew yesterday. And we still know the blog sites Motley Fool and Seeking Alpha support short arguments.
I don't need to read it. You were wrong. LOL.
"No Announcements until End of July"
And then a company announcement on July 2nd, as expected.
If they are on track to profitability and on track to production targets then the market will react favorably to the Q2 report. I still think the Q1 results were bad, but the disclosure that they were behind schedule on the production goals was the big problem for the market.
Anyone looking at the business plan understands that they have the construction completed and they have to deliver on the facility production targets: 20,000-ish mt per year production and $6-$7 per kg cost basis. And delivering on those goals will turn the company profitable. It is that simple. They have said over and over that they are going to get to those goals, and yet, here we are, 2nd half of 2014, and we don't know if or when they will get there.
I thought Q1 would be better than expected and I was wrong. I again see how they could have numbers that exceed the Q2 estimates, but really, it is the progress that once again needs to be shown (although "show me the money" is always important). We need to hear the May, June, and July production, as well as the August production, which they will know by the time of the report (they knew and reported 520 mt for April, at the Q1 report for Jan-Feb-Mar). If the production levels for those months are good, and the cost basis they are at for August is good ... then the stock should soar. Right now the expectation is clearly that they will announce lower progress and probably announce a later expectation for delivery of the goals. Instead of talking about the end of 2014, they will start talking about the first half of 2015.
I sure hope that is wrong, but the market is pretty clearly negative on the expectation of progress.
I can't do that with accuracy. Since the only real question is: Is it possible for ME to know tops and bottoms with enough accuracy to make money using that prediction? If someone else can do it, then it is possible for them. I can't. The answer to your question is that I don't know if it is possible. The answer to my question is no it is not possible.
I will entertain the squeeze question, which I consider spurious. If the price of MCP spikes beyond what might be expected, and it is clear it is a short squeeze, you can (along with everyone else) try to sell before the price collapses from astronomical to merely up. If you sell too soon, you leave money on the table. If you sell too late, the bottom might be falling out. If the price leaps and falls, then leaps and falls, then leaps and falls again, a trailing stop might take you out after just the early exiting shorts exit, but before the next group is forced out.
You get to make a decision in a rapidly rising market: what price should I sell at? I recall a day when both I and a co-worker owned some Audible stock. They announced what I thought was bad earnings and we commiserated, then the stock took off in pre-market and ran a large percent. He set a limit sell at $11.80 and that filled ... he said that was the target he thought was best. I set a trailing stop of $0.50, and sold at $11.40-ish. Neither of us could predict the top. Both of us saw the spike as a temporary thing to take a profit from. Volume was crazy high. The market gave me a gift IMO. There was nothing to cause the spike, or draw in the daytraders, or to squeeze the shorts. But the price spiked anyway. Both my co-worker and I made more than expected. And we were happy to be rid of a stock that had just badly underperformed and IMO.
That is an opportunity cost though. The reality is that a profit was locked in at the time of the short. There are lots of times that a person risks an opportunity for a "sure thing".
Yes I was kidding about the shares all being 1 share swapped. The point is that it does not take insiders releasing shares, it only takes shares selling in the market.
And yes we have had the disagreement about whether the convertible bond holders have shorted any stock. I have said (and shown math) that it made good sense for them to do so. I have no proof they did, just as I have no proof the the short interest was more than one share being moved repeatedly.
You always conclude that you know my position and always conclude I am not long. I am long. Your opinion is fine with me. You don't know me, and (hopefully) I don't know you. I'm not sure how you black and white opinion helps you, but have at it.
Unless YOU recognize that the places that shorts can get shares are the ordinary stock market, the ordinary options market, the ordinary (convertible) bond market, and possibly other places, then you will constantly mislead yourself about unavailability of shares to cover.
I can see what I posted using the search function:
You collect the $0.60 per share as soon as you sell the contract. You must maintain the $3 per share to buy the assigned shares at all times as you might have the contract exercised at anytime.
The money is not free. They very clearly spell out the risks. You could have Molycorp declare bankruptcy, and be assigned shares at $3 that are worthless. That would represent a $2.40 per share loss. For taking on that risk, you get paid $0.60 per share.
I agree that the contract is worth selling. The risk is small. But the fact is that you are the insurance for someone thru 2015, thru the next 19 months. You do have to keep the $3 per share exercise price in my account so it ties up funds there. (That is how the return is only 20%)
Go for it if you like it. But it has risks and rewards. You can earn a 12% annually on the trade of selling the contracts. Obviously Shock Exchange with his bankruptcy will happen, it is just not imminent, would never take that trade.
People love these trades until the day they get assigned shares with a huge loss.
After all, why not the $4 options. The bid is $1.01. So you get $1 for tieing up $4 for 19 months, a higher return. $5 Puts are bid a $1.52, a whopping 30% net over 19 months.
Do what you want. Those are reasonable positions. Just not for me.