Following this weekend's bankruptcies of Ultra Petroleum and Midstate Petroleum which added $3.1 billion to the mushrooming high-yield energy bond default volume tally, in addition to the $1.5 billion of credit facility defaults, the energy high-yield default has soared to a record 13% rate, surpassing the 9.7% mark set in 1999, according to Fitch Ratings.
In the same way that FDR had an existential political interest in generating inflation and preventing volatility in the US labor market, so does the US Executive branch today (regardless of what party holds the office) have an existential political interest in generating inflation and preventing volatility in the US capital markets. Transforming Wall Street into a political utility was an afterthought for FDR; today the relative importance of the labor markets and capital markets have completely switched positions. Today, the quote would be "markets are too important to be left to investors."
The Liquidity Endgame Begins: Whiting's Revolver Cut By $1.2 Billion As Banks Start Slashing Credit LinesSubmitted by Tyler Durden on 03/14/2016 21:03 -0400
Whiting, the largest oil producer in North Dakota's Bakken shale formation, had $2.7 billion left on a loan revolver at the end of 2015. Its CEO Volcker said on Thursday he expects Whiting will have "at least $1.5 billion" left on the loan after the redetermination, implying a cut of $1.2 billion. What is most troubling is that as recently as late February, or just a few weeks ago, the company said it expected a cut of no more than 30%, which would have been roughly $800 million.
While the recent Weatherford example was indeed grotesque and extreme in its inherent conflicts of interest, some readers wondered if this was perhaps an isolated case. The answer: a resounding no: as the following table shows, the vast majority of new equity proceeds have been used almost entirely to pay down revolvers and existing debt, and to allow banks to reduce their exposure to these oil and gas companies.
Over the past month, as expected, the CLO rout has gone from bad to worse, and according to the latest Morgan Stanley CLO tracker, as of the end of February, the median US CLO 2.0 equity NAV stood at -1.99 with the number of CLO 2.0 deals’ equity tranches currently having NAV below zero soaring by 30% from 348 to 453.
"JP Morgan is raising equity in a company with questionable prospects and using the funds to repay debt the company owes JP Morgan. The arrangement allows JP Morgan to get its money out prior to lenders subordinated to it get their $401 million payment."
Once the current short squeeze is over, expect everyone to start paying far more attention to recovery rates and the true value of "fundamentals." Here's why.
"Yesterday oil ended in the green despite a very large reported crude inventory build, a reflection of how biased to the downside sentiment and positioning already is. Today, crude started in the read and has been mixed from there but moving higher. And both days, the stocks have lead with energy the best performing subsector in the S&P. Now, there is no doubt that the performance today is TOTALLY short-squeeze led. Though it also shows how negative sentiment and positioning is."
It Was True After All: The Government Is "Breathing Down The Neck Of Banks To Limit Their Energy Exposure"Submitted by Tyler Durden on 02/21/2016 17:18 -0400
As it turns out what we reported about the Dallas Fed was spot on after all: "The OCC is breathing down the neck of the large commercial banks to limit their energy exposure."
Oil companies have sold $61.5 billion in stocks and bonds since January as oil prices have tumbled. However, the fees geneated are a tiny fraction of the bank's real exposure to the energy sector, at over $150 billion. So have the banks learned their lesson? "The bankers have gone through this before,” says Oscar Gruss’s Meyer. “They know how it works out in the end, and it’s not pretty." Then again, perhaps banks are just sailing on an ocean of liquidity allowing them to postpone the day of Mark to Market reckoning, especially since this time, everyone is in it together....
In a furious race to shore up as much liquidity as possible, Glencore - which a month ago announced a dramatic deleveraging plan - and its peers have been quietly scrambling to raise billions in secured funding. Case in point none other than Glencore's biggest competitor and the largest independent oil trader in the world, Swiss-based, Dutch-owned Vitol Group, whose Swiss unit Vitol SA earlier today raised a record $8 billion in loans.
“Maybe this isn’t a great indication of the state of the economy.”
Second Largest Coal Miner East Of The Mississippi Files For Bankruptcy: 4000 Patriot Coal Jobs In PerilSubmitted by Tyler Durden on 05/12/2015 09:23 -0400
At last check Patriot Coal had around 4000 employees. Those soon to be former employees will soon require yet another massive seasonal adjustment by the BLS to be "adjusted" out, because moments ago the second largest coal miner east of the Mississippi and the second largest producer of thermal coal in the eastern US filed Chapter 11 bankruptcy.
With NIRP having turned traditional risk-free assets into guaranteed losers, investors have poured more than $9 billion into junk bond ETFs YTD, and while common sense dictates that buying at the top of an epic HY bubble just ahead of a rate hike cycle and against a backdrop characterized by disappearing liquidity in the secondary market for corporate credit is a fool's errand, most investors feel they have little choice.