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The Junk Bond Extend-And-Pretend Hits New Highs
The latest indication of the exuberance in high yield was today's announcement from oil-tanker owner Teekay. The firm is offering $300 million of debt to finance a tender offer of the firm's 8.875% 2011 senior notes. Nothing has changed from the frothy days of 2007: tender short, provide sweetener, price longer maturity deal, wait out the next crash, repeat. In the meantime, the company's products are used as glorified warehouses to store ever greater amounts of oil for that day when Goldman's $1,000,000/barrel price predcition finally comes through. In the mean time, EIA reported another 3.7 million crude inventory build to 331 million barrels. Of course, massive supply will bring its own demand... Eventually.
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Ponzi diversity.
The Noreasters can kill demand further by breaking out those electric space heaters and doing half fills on the heating oil tanks. Starve the oil spec beast.
of all the perversities curently in the market, and there are many,I think the junk bonds are the absolute worst. We went from nobody will touch anything but US gvernment treasuries to everybody will buy any bond from the shittiest companies, in less than one year, and there doesnt seem to be an end in sight. After seeing big companies like Lehman go down, and countless other smaller companies, how could anyone think this is a good time to speculate in high risk companies? What amI missing here.
they have no idea what percentage of their business is standardized vs. bespoke derivatives
such BS
BS = Bespoke or Standardized
someone is going to find a way to use that oil, and then we'll ram back into the overhead supply curve. That will be a big lolz moment
It would be ironic (not so much funny, as marine life will suffer) if a torpedo found its way to the hull of some of these tankers waiting offshore for the oil price carnage that Santa didn't bring them this winter. That would be a fitting end.
Any chance we can get some of those Somali pirates to venture out into the Atlantic? Talk about a target rich environment. A bounty awaits those bold enough to commission a cutter and reap the low hanging fruit of dozens (hundreds) of unprotected tankers just off the coast.
But I wouldn't want to give anyone any ideas...
I am Chumbawamba.
26 mile long dry-bulk tanker-warehouse at sea and cushing is always 41 full of its 48 million capacity while 300 million changes hands monthly as per the Nymex Boyz chicanery. Phil Davis of Philstockworld has been pounding this drum for at least 3 years now; it is such a joke.
There is plenty here I don't understand. Doing a refi now can be bad and good. On the bad side, tendering for a one year out 8% bond would surely imply paying a premium as opposed to par when the bond shortly matures.
On the good side, they are selling fresh - apparently longer term - debt at low rates.
In isolation, TeeKay is taking a long position (and paying a premium) on interest rates. I am personally long the TBT thinking rates will rise shortly.
As far as TeeKay holding crude in tankers goes, that might or might not be a loser deal. If there is a recovery, then that crude will go up. I don't see a lot of downside on the crude here. If there is a stinger missile or two then crude will surely rise. That crude will not get sold in pirate country and has already probably been moved closer to customers in civilized waters. Besides, why not move it now when the price of fuel is relatively low.
In the medium term looking back, I think that interest rates and crude have been somewhat inversely coupled. If rates go up, then the dollar rises and crude drops. TeeKay is long crude - the floating storage, and through the new debt deal they have gotten long rates. So it is a hedge.
However, that interest rate/crude relationship has recently become positively correlated. A recovering economy means rising rates and rising crude prices. From that perspective, TeeKay has moved into the far left lane on an economic recovery prospect. AAnd if a recivery comes, then tanker rates will climb.
You also need to take into account the age and configuration of TeeKay's ships. All of the single hulled ships are being rapdily phased out ahead of the mandated time due to the bad economy. There is a glut of new double hulled tankers. TeeKay's "floating storage facilities" might represent a fraction of the cost of the carge. Stated differently it might be a completely depreciated asset.
Now to make matters even more simple, consider that one of the biug banks (Morgan Stanley I think) recently (2007?) built a lot of physical on land storage - tanks. So there was/is a demand and market for physical storage - no doubr oversupplied today. I am rather sure that there is a futures market in physical storage. Just maybe, TeeKay sold forward storage futures a couple of years back so they are making some coin off of accepting delibvery. Who knows.
To be sure, that company has a whopper of a complicated structure. I hope that they have an army of risk managers/traders all earning a couple hundered $K annually.
Having said all of that, I think it would be nearly impossible for a lay person to evaluate TeeKay. I would suggest that in a micro view, the volitility of TeeKay will increase. So the play would be to buy an option straddle. In the macro view, Roubini has insightfully termed Bernanke actions as having sold volatility. Think about it. The VIX is way down. Buying all of the MBS, Treasuries and perhaps S&P futures has squashed volitility. It has to end sometime. Which way will crude or the economy go when it does??? I don't know, but a figure getting long a straddle on TeeKay would be an exceedingly leveraged position on volatility given the micro and macro aspects - and probably a low risk one.
Love to debate it.
Will this be as good as your LPX prediction back in March?