Donald Trump

Aubrey McClendon is no amateur when it comes to shady personal transactions involving his company, nat gas giant Chesapeake: Back in October 2008, just after the financial crisis erupted, he was forced to sell more than 31 million Chesapeake shares for $569 million to cover margin calls generated from buying CHK stock just prior on margin. The company’s stock fell nearly 40 percent the week of McClendon’s share sales. McClendon issued an apology but the company’s credibility with many shareholders suffered significantly. It looks lie the story is repeating itself, only this time the margined security is not company stock, but company loans. As Reuters reports in a must read special report "Since he co-founded Chesapeake in 1989, McClendon has frequently borrowed money on a smaller scale by pledging his share of company wells as collateral. Records filed in Oklahoma in 1992 show a $2.9 million loan taken out by Chesapeake Investments, a company that McClendon runs. And in a statement, Chesapeake said McClendon’s securing of  such loans has been “commonplace” during the past 20 years. But in the last three years, the terms and size of the loans have changed  substantially. During that period, he has borrowed as much as $1.1 billion – an amount that coincidentally matches Forbes magazine’s estimate of McClendon’s net worth." Ah yes, net worth calculations, which always focus on the assets, but endlessly ignore the liabilities (as Donald Trump will be first to admit). But ignore that: what is more notable here is the circuitous way that McClendon basically lifted himself by his, or rather CHK's bootstraps: all the loans are collateralized by his 2.5% working interest in new CHK wells drilled every year. In essence a roundabout way of generating "cash" by hypothecation, and levering into an "upside" corporate case. Should CHK however incur asset impairments, and/or if the current price of gas stays at or $2.00, then not only will CHK be gutted but so will the asset quality securing the private loans to the CEO, which on top of everything have no covenants ("There are no covenants or obligations in my loan documents or mortgages that bind Chesapeake in any way," McClendon wrote in an email to Reuters.) and thus no stakeholder protections. Is it any wonder then that CHK is getting creamed as of right now as investors are once again reminded that CHK may not quite play by the rules?

What would a Collective Action clause achieve? Let’s say they institute a 75% agreement clause, so that if at least 75% of the holders of anyindividual bond issue, agree to the terms, then all bondholders are forced to accept the new terms.  Will adding a Collective Action Clause make investors agree to the changes?  I don’t see why that would happen.  If you didn’t agree to the plan being proposed by Greece now, why would you agree to the plan if all they have done is institute a Collective Action Clause.  You wouldn’t, so you would still have the same group of holdouts. What happens if a bond doesn’t get 75% agreement?  Then those that agree get the new bonds, and those that don’t agree keep the old bonds.  Same as now. But if it is the same as now, why bother?  Maybe they need to make it 50% agreement?  Or 10%?   In any case, there may be individual bonds that don’t meet the Collective Action threshold.  For those bonds, it is exactly the same as it is now – except that the government changed the rules retroactively and jammed it down your throats (but more on that later). What happens if 80% of the holders of a particular bond agree?  Then all bondholders are subject to the agreement.  Well, guess what, that is a Credit Event! 

Developing story... and the end of an era. Ivanka gone too...

This effectively means the Trump Atlantic City Casinos are 4 days away from bankruptcy.