SandRidge Energy, Inc. (fka SDOCQ)

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Dallas Salazar, CapGainr (168 clicks)
IPOs, contrarian, long/short equity, long-term horizon
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SandRidge - Assessing The Probability Of Default
Jul. 21, 2015 9:53 AM ET | 1 comment | About: SandRidge Energy, Inc. (SD)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Summary

I have some good news and some bad news for those with exposure to SandRidge Energy.
The good news is that if SandRidge can hang on past the next 12 months or so it looks like its probability of default will come down considerably.
This of course would assume quite a few variables fall into place exactly how SandRidge would need them to.
The bad news is that I don’t think SandRidge selling is over and that isn’t good for the pain trade that’s currently on.

I have some good news and some bad news for those with exposure to SandRidge Energy (NYSE:SD).

I'm assuming if you're buying SandRidge equity at today's pricing with the knowledge that the E&P is under considerable stress that you're treating the exposure as a long-term CALL-like option that can provide significant upside if the E&P can make a survival turn. This makes sense if you're stressed equity investing as the common does in fact offer CALL-like return potential yet has no decay. For those with exposure from higher pricing I don't presume to know your particular reason for holding on the way down.
The Good

The good news is that if SandRidge can hang on past the next 12 months or so it looks like its probability of default will come down considerably. This of course would assume quite a few variables fall into place exactly how SandRidge would need them to. I'll explain before getting to the bad news.

(click to enlarge)

(Modeling using Kamakura risk management software KRIS. Kamakura is an institutional risk management and consulting firm. It currently does not offer this software to non-institutio