Noble Group's "Margin Call" Part II: The Enron Moment
"Our balance sheet - the strongest in recent history - represents a significant advantage as we continue to identify high value growth opportunities across the products and geographies we operate in. Maintaining our investment grade rating with the international rating agencies is a vital part of this strategy."
- Noble Group 2014 Annual Report, p. 27
* * * * *
"Moody's Investors Service has downgraded Noble Group Limited's senior unsecured bond ratings to Ba1 from Baa3 and the provisional rating on its senior unsecured MTN program to (P)Ba1 from (P)Baa3."
- Moody's, December 29, 2015
* * * * *
"Noble Group Downgraded To 'BB+' On Weakened Liquidity; Notes Lowered To 'BB'; Ratings Still On CreditWatch Negative"
- Standard & Poors, January 7, 2016
Noble's "Margin Call" Part II - The Enron Moment
The story of Noble is worth writing a book, mostly of how not to run your business.
If they are in this mess, it is in large part because the management was comprised predominantly of traders who were predisposed to defend their books.
Noble has been desperately trying to revive their image by hiring former Goldman, JP. Morgan, Trafigura executives etc. By doing so they were looking for a form of credibility collateral.
It didn’t work well for the new employees as they rapidly found out that they inherited from the liabilities of one decade of Noble’s poor decision making of the hard-core asset guys like William J. Randall and ex-Goldman Sach banker Yusuf Alireza.
In the part II of this analysis we will review the gap between the liquidity headroom and the debt maturity profile of the trader and explain how Noble Group will have its Enron moment.
The fatal mistake that Noble Group did was to deliberately mislead the market about their financial performance using accounting devices.
During last November, Noble Group's chief financial officer Robert van der Zalm has stepped down from his position after taking a leave of absence for “health reasons”.
Two months later, Moody’s downgraded Noble Group.
In a very awaited decision, Standard & Poor’s has finally lowered Noble Group’s to junk, placing Asia’s largest commodity trader on watch for further possible as the rating agency remains skeptical about the liquidity headroom of the trader.
According to Noble Group, on September 30th 2015, the company had $15.5bn banking facilities and $1.669B in RMI (ready marketable inventories).
- $11.1bn of these $15.5bn banking facilities is uncommitted and are contingent on ability of maintaining investment-grade rating in the future.
- Noble claims to have $900M of cash and 1.669B$ in RMI (ready and marketable inventories).
- Their 1.669B$ in RMI have claims on related- party notes that are under collateralized by their commodity merchant activity and therefore should be excluded from their liquidity headroom.
- Noble Group currently uses $3.4B of borrowing facilities that are uncommitted.
Noble Group is left with only 1B$ of unutilized committed borrowing facilities and $900M of cash ready available to meet $2.966B of debt scheduled in the next 12 months.
Source: Noble Group MD&A Q-3 2015
Moreover, Noble Group counts on the completion of the Noble Agri stake divesture to reap $750M, a transaction which may not be completed by February 2016.
Adding the 1B$ of unused uncommitted borrowing facilities plus the $750M of Noble Agri and the $900M of cash that Noble claims to have, Noble is still short by $316M.
With the S&P downgrade, the total collateral margin call on Noble Group could be as much as $3.4B, banking facilities that are uncommitted and contingent on the ability of maintaining their investment-grade rating.
Noble will have its Enron Moment.
Enron's bankruptcy occurred on November 2001 and was triggered by S&P's downgrade of its debt below investment grade, activating a call provision in some loan indentures with principal amounts totaling $4 billion, cash and liquidity that suddenly Enron didn’t have.
After the quick sale of Noble Agri, Noble’s core business remains its coal & energy – two very depressed commodities for the foreseeable future, and with no cash-flows to pay its debt and a sudden tightening of the credit, the trader is a cancer patient on the forward curve.
(16 votes)
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So one of the Noble Gasses is now Farts?
Farts galore I must say. But isn't this the same old story with all these crooks?
And you know Nuks, sometimes when you try to fart you accidentally drop a turd!
Farts sometimes have lumps?
Who knew?
That's whathappened to Killery Cliton during the last DNC debate. She was late because she had to change her big girl diaper...
No one owns me.
OLDPHARTS are harmless
The New Pharts are the source and cause of all problems
Almost nothing paper is investment-grade, so why should Noble worry these days.
Free Corzine!
And Ken Lay while we're at it.
Ken Lay is free. He got off easy.
Perhaps they are just praying the USD will have it's ENRON moment before they do.
Did not Ken Lay die of a heart attack?
In Aspen. Since he died before the final appeal, apparently under US criminal law, that means no crime as it was never fully through the legal system. So, as I get it, his family gets a pass on the 'stolen' assets being forfeited through a judgment (some lawyer can undoubtedly put better info to this)
Heart attack in Aspen - wow what timing! Although, a pile of hookers and blow often lead to that.
He had heart problems and difficulty breathing. He was supposed to stay away from higher altitudes. He knew this and going to Aspen was basically suicide. The news reports were that his family kept the money because he was dead.
They have nice-sized electric and gas portfolio in the US. Maybe they're selling length
Paper is for starting fires, hard assets are to be admired by the light of the fire and whiskey is to be sipped while the fire burns.
too bad we cant trade this bitch on the US equity marekts..or can we?
Somebody light a match, please!
...maybe if they started their own bourse and bank?
,,,maybe they could short themselves.
Largely an excellent summary They were caught with a balance sheet unprepared for the meltdowns of commodities in Asia. Still a rotating chair for empty suits (maintained or hired to be props) and draining expenses. How much skills do you need to trade collapsing coal/energy commodities ? The suction of compensations viz cash preservation at the "mortuary' stage still endorsed by the stakeholders ? Amazing. Run for the hills while the debris still have some liquidation values. Smarter traders in Asia are encircling to feast
Elman just bought 10 Mil shares @0.31 raising his stake at 22%. Yusuf who fought the Moody downgrade has been largely absent since S&P downgrade. is there dissention at the helm now? Clearly any further downside in energy will take down Noble.
This sucker is going down
A corpse on the forward curve hooked on the HIBOR at 969bps.
http://seekingalpha.com/article/3799636-david-tepper-sends-another-lette...
SummaryAs publicly disclosed, the Funds collectively own 7,600,000 shares, or 9.5%, of the outstanding Class A common stock, par value $0.01 per share (the "Common Stock") of TerraForm Power, Inc. (the "Company"), in the applicable amounts set forth on Schedule A, annexed hereto and made part hereof.
Pursuant to Section 220 of the DGCL, on behalf of the Funds, ALP hereby demands that it and its attorneys, representatives and agents be given, during usual business hours, the opportunity to inspect the following books and records of the Company.
The purpose of this demand is to enable ALP and the Funds to investigate potential wrongdoing by SUNE and/or the Board in connection with the Subject Transactions and the Interim Agreement.
Please accept this as a revised demand for access to corporate books and records pursuant to Section 220 of the General Corporation Law of the State of Delaware (the "DGCL") designed to address the objections contained in the letter, dated December 31, 2015, from Michael G. Bongiorno, Esq. to Steven Siesser, Esq. and Lawrence M. Rolnick, Esq., a copy of which is attached hereto as Exhibit C. Appaloosa LP, a Delaware limited partnership ("ALP"), is the investment adviser to the following funds:
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SunEdison’s Troubles Are Far From Over
http://seekingalpha.com/article/3801946-sunedisons-troubles-are-far-from-over
Summary
SunEdison appears to be increasingly desperate to resolve its debt situation.
SunEdison’s financial issues have forced the company to pull back on its ambitious renewable energy vision.
The Vivint Solar acquisition deal looks increasingly risky given SunEdison’s dire financial situation and mounting investor pressures.
SunEdison’s yieldcos are experiencing yet another downturn, which will make it harder for the company to make money off its projects.
SunEdison (NYSE:SUNE) has continued to experience extreme volatility over the past few weeks. In just a matter of days, the company managed to almost completely wipe out the tremendous gains it made as a result of the U.S. ITC extension and global climate deal. SunEdison’s most recent stock drop was a result of the company’s efforts to relieve its debt situation by exchanging a substantial amount of debt for equity. More specifically, the company announced that it took on $725 million in new term loans and is diluting its equity to pay for its debt.
Given the unfavorable loan terms (LIBOR +10% interest rate) that SunEdison has taken on, the company is evidently desperate to relieve its debt situation. With approximately $11.7 billion in debt, SunEdison is clearly prioritizing its financial situation. While SunEdison is smart to focus on improving its financials, the company’s decision to use equity to pay off debt has clearly been met with displeasure from investors. In fact, the company’s valuation dropped by approximately 40% immediately following the news of its recent transactions. SunEdison’s large array of businesses and desperate financial situation will likely continue to plague the company moving forward.
Renewable Vision Not Panning Out…
Tepper’s Latest Letter To Terraform Power Alleges Self-Dealing By SunEdison
http://seekingalpha.com/article/3802476-teppers-latest-letter-to-terraform-power-alleges-self-dealing-by-sunedison
In case SunEdison (NYSE:SUNE) management wasn’t already dealing with enough investor frustrations after their recent dilution announcement, they now have yet another issue to deal with. David Tepper-controlled Appaloosa Management filed an amended Form 13D on January 8th, which spelled out in detail the reasons for their Section 220(b) request to inspect the books and records of Terraform Power (NASDAQ:TERP).
Appaloosa’s initial request for this information, made on December 21st, was denied by TERP’s counsel on the grounds that the request was too broad, and that Appaloosa had not noted a proper purpose. This was of course a stalling tactic by TERP, and Appaloosa has quickly responded with a more detailed request that TERP should not be able to deny.
"The fatal mistake that Noble Group did was to deliberately mislead the market about their financial performance using accounting devices."
Can anything different be said about all banks and "modern" public companues? I get tired of seeing mark to fantasy and adjusted EBITDA as the new gold standard for PE analysis.
+1 Grandad. There are a few that seem to play it straight. Most utilities and small-mid cap manufacturers have GAAP reported earning which are
1) Positive
2) About the same as non-GAAP reported net income and
3) More than their dividend
These are the equities in my portfolio, dividend payers with honest earnings. BORING, but true. When prices fall, my dividend reinvestment gets a bump. When prices rise, I sit tight. Dividend strategests love REITs, but I can't get confortable with the sector so I pass on their 10% dividends, expecting their time will come too. But utilities and manufacturers who have maintained an honest profit despite a strong $, I can abide there.
encore glencore encore
The twisted part of me will be scanning first for resignations and "spending more time with my family" bullshit announcements, then later in the cycle scanning for obits on the following names (you know the kind..."falling" out of hotel windows and "drowning" in bathtubs...that kind of wack obit):
Mark Hansen - Head of Metals (cool title bro!)
Neil Dhar - Head of Carbon Steel Materials (China...blah blah massive coal play...blah blah yawn. Noble is too ashamed to mention his prior company affiliations as a trader)
Jeff Frase - Head of Oil Liquids Trading (look out for crashing in companies affiliated with Colonial, Magellan, and Explorer pipelines, since Noble has major plays in each)
Manish Dahiya - Head of Energy Coal (Why hello India, you look wonderful today! How can we fuck you over?)
Gareth Griffiths - Global Head of Gas and Power (look at how they handled Naftogaz for a glimpse at power plays led by the EU to Ukraine)
Jim Wood - Noble Americas Energy Solutions (retail electricity and...SQUIRREL!)
Michael Nagler - Head of Chartering, Nigel Robinson & Dimitrios Kavvathas - Co-heads (not a bad dry bulk business...)
Giovanni Serio - Head of Research (voted most likely to have an accident? - Ex Goldman Sachs and BP)
Nigel Robinson - Co-head Financial Services (Ex Deutsche Bank, Goldman Sachs, Solomon Brothers)
Jeffrey Alam - General Counsel (ex Morgan Stanley)
Yusuf Alireza - CEO (ex Goldman Sachs Asia head and GS Global Management Committee member)
William Randall - President
Robert van der Zalm - CFO
Bill Cronin - COO and CRO (the buck-stops-here RISK guy)
No idea who is on the Risk Committee as that would provide a better idea as to who may bail first.
Knee slapping WTF chapter battle in the 8-2015 management report between: "MISCONCEPTIONS ABOUT NOBLE GROUP: FAIR VALUE AND MARK TO MARKET" and "MISCONCEPTIONS ABOUT NOBLE GROUP: CASH FLOW AND LIQUIDITY."