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Bankruptcy 101: a primer for U.S. coal markets
Saqib Rahim, E&E reporter
EnergyWire: Tuesday, August 11, 2015
The bankruptcy filing by Alpha Natural Resources Inc. last week was the coal industry's biggest yet. It won't likely be the last.
The many maladies of the U.S. coal industry have forced dozens of coal firms into business purgatory: Chapter 11 of the bankruptcy code. Alpha, the United States' second-largest publicly listed coal business, followed in the footsteps of Walter Energy Inc., Patriot Coal Corp., James River Coal Co. and dozens of smaller players that have filed in the last two years.
Two of Alpha's rivals, Peabody Energy Corp. and Arch Coal Inc., are still standing, but their financial fragility means bankruptcy can't be ruled out.
Companies that go through a Chapter 11 "restructuring" will have to take a hard look -- with their investors, and in front of a judge -- at what their businesses can be in the future. It will not be an easy question to answer.
"It's very hard for people to produce a reliable forecast that says, 'Here's where the bottom is,'" said Stephen Arbogast, a finance professor at the University of North Carolina Kenan-Flagler Business School. "So it's an extraordinarily open and painful restructuring that's going to be a combination of consolidation through Chapter 11 and outright liquidation. Because nobody can see any growth and nobody knows where the bottom is."
The goal is to produce a plan that shows the business can be sustainable. If it's approved by the judge, the firm can re-emerge from bankruptcy. If no plan is approved, the firm may be sold or just go extinct.
EnergyWire lays out the milestones to watch.
1. To file, or not to file
Bankruptcy is a choice. It is a company's acceptance that, under current conditions, it will not have enough money to keep the business going.
Why is that? There could be many reasons. The business likely isn't generating enough revenue due to low prices, for instance. Bonds may be due soon, in the amounts of hundreds of millions, even billions, of dollars.
Historically, coal companies could turn to capital markets to raise cash. But in the current environment, Wall Street isn't interested in issuing stock or debt.
At the start of this decade, coal companies borrowed billions to expand their businesses. Now, they're struggling to pay for that debt -- in some cases, so much that they go bankrupt.
By filing for Chapter 11, a coal company concedes that it can't continue to operate with existing financial pressures. It elects to stand before a court, with its business on standby, to see if a path forward -- with less debt, or a smaller company -- can be envisioned.
Not everyone makes this choice. If a company has enough cash stored away, its strategy might be to wait out the coal downturn.
2. The financial pecking order
Technically, a bankrupt coal company doesn't own its business. Its lenders -- its senior bondholders -- do. They're the first ones to sit down with a company's management and discuss a restructuring plan. That gives them the best chance at what they were promised: their money back.
But they're not the only ones with a chance. There's a pecking order: junior bondholders, suppliers and anyone else who can claim the company owes them money. Everyone has hired a lawyer, because that's how they can vie for a piece of the company -- whether it's being repaired or dismantled.
There may not be enough to go around. The lower you are in the pecking order, the more likely you'll be left with crumbs.
"The main thing is that the investors that own the bonds are in a situation where they may get no or partial recovery on their investment," said Chiza Vitta, a credit analyst with Standard & Poor's.
For example, S&P estimates that if Peabody were to default on one of its "senior unsecured" bonds, the recovery would be a "modest" 10 to 30 percent.
Those who hold stock in the company are lowest in the pecking order. Often, in a restructuring, they are wiped out, receiving nothing for their shares.
3. Existential questions
Consider Walter Energy, which filed for Chapter 11 last month and whose chief business is mining metallurgical coal, the fuel used for steelmaking.
"Is there a reason for Walter Energy to exist a year from now?" said Spencer Cutter, a senior credit analyst with Bloomberg Intelligence. "Is there going to be a market in this world for metallurgical coal? And what are the prices for coal in that market, and what are Walter's costs to produce that coal?"
Bankruptcy forces existential questions for all companies. But given the current state of energy markets, the questions for coal companies are difficult ones to answer.
In the United States, climate regulations may permanently constrain the coal market. Abroad, Chinese demand is slowing, and Indian demand may not make up for it. The price of natural gas and the advance of renewable energy remain major unknowns.
Against that backdrop, coal firms must decide how to downsize their businesses. They may sell mines to raise cash -- if they can find buyers. They will likely rebuild around lower-cost mines in the Powder River and Illinois basins, at the expense of Appalachia.
In Appalachia especially, they will try to put pressure on union and pension interests in order to cut costs.
And if the money doesn't work out, a company may find it has to sell its entire business, lock, stock and barrel.
"There are bankruptcy processes where they just sell the assets. They liquidate," Cutter said.
Some coal analysts argue that U.S. coal companies have profitable businesses, if only they can get rid of their debt. The question is, how do they restructure that debt? And what should the business look like in the future?
4. Make a new plan, Stan
Some restructurings can go quickly, ending in a matter of months, if the company's management and bondholders are on the same page. Other Chapter 11 cases can be long, scorched-earth affairs, if the various parties end up competing for pieces of the pie.
In Alpha's case, it arranged for 18 months of cash to see it through the bankruptcy process. The company said it had the blessing of its major lenders.
In any event, the bankruptcy court ultimately wants to see a proposed plan of reorganization -- whether from management or someone else. The plan can't be temporary, experts told EnergyWire; it can't set the company up to return to bankruptcy in a few short months.
But if there's a plan that sets the company on more sustainable footing, and the court believes it maximizes the value of the company, the judge will approve it. That would allow a company to re-emerge from bankruptcy.
How many companies will make it that far? And how many will fold?
Even longtime coal watchers are unsure if they are witnessing the death of the coal industry, or a gruesome resurrection.
"I don't think there is a consensus view or a popular view about what happens here," said Kristoffer Inton, an equity analyst with Morningstar. "The miners seem optimistic this will turn around. ... [A]s additional bankruptcies come, I don't know what it turns the market into, what happens."
on the contrary...everything nosedives for days and we'r stable hear with potential to breakout anytime
now 0.04 gap on the bid/ask...that is truly an experiment proned to fail...being an mm or else..don't panic...have a good WE
Summerbreak and all these other factors (instability in greece, big china correction, dropping oil prices and, thus, declining south am. markets etc.) indirectly affect ecig investors....but the world markets incl. these that depend on china (eg germany DAX/europe)are not in true trouble but in a little correction...thus, they should bounce back next week
I would not be surprised if some ecig short covering starts by EOD/EOW in the last 15 minutes since all news are absorbed now, and neither pps nor volume reflected effective manipulation.
Next week ill be B E T T E R!
Interesting how the short volume on resp. sites does not correlate well will the facts:
Historical Short Selling Data For ECIG
Date VolShorted High Low Close ShortVol RegularVol
Aug 19 67.60% 0.39 0.366 0.382 93,824 138,794
Aug 18 63.02% 0.395 0.34 0.37 144,556 229,394
Dan's purchase:
08/19/2015 P 11,400 A $ 0.3899
08/18/2015 P 103,600 A $ 0.3767
Vapestick in the US now, great!!! That should lead to almost instant benefits.
As a reminder of the expansion of global presence...ECIG officially listed on the Mansour Group homepage...anyones guess where we stand in 3-5 years from now!!! (The Mansour Group operates an array of multi-national companies with total revenues exceeding $6 billion, over 60,000 employees and presence in over 120 countries...examples see:::
www.mansourgroup.com/Industries/ConsumerGoods)))
SAFE & SOUND INVESTMENT: Upon outstanding developments in the last 5 months and global opportunities of ECIG and the vape/e-cig market in general strongly consider to treat ECIG investment like a 401K = Add consistently every 2 weeks to build up your position w/o significant risks but highest potential for major reward IMHO
Market Maker Signals (executed or on Level 2):::
[You will usually see these trades early in the day, many times pre-market and when the volume slows down or around 1:30 - 2:30 PM EST]
100 - I need shares.
200 - I need shares badly,but do not take the stock down.
300 - Take the price down so I can load shares
400 - Keep trading it sideways.
500 - Gap the stock. This gap can be either up or down, depending on the direction of the 500 signal.
505 - Short on Shares
911 - Pending News
also:
300 - bring the price down at least 30% and
600 - provide resistance
900 - let the stock float
most certainly I expect to see 0.4s today...and hopefully holding them into friday
I doubt that you have more than 30000-40000 free shares; I rather have some more, "free" or not, for future developments that could well be beyond the opportunity to catch the right time frame for sequential flipping.
Good luck with your .20ties, though.
yesterday a 100 share buy spilling into the few minutes after market reported purchases..today a 200 share purchase paint job in the last minute= both to keep the pps drop small....what are your theories guys (signals by MMs by EOD to which effect)????? thanks
needs patience. reorganization/info starting end of october and stretching over a year:
(http://www.conferencecalltranscripts.org/8/summary/?id=1921474)
No later than October 30, 2015, delivery of a five-year business plan reasonably acceptable to the required DIP Lenders (the ?Agreed Business Plan?).
No later than November 30, 2015, delivery of a plan and timeline reasonably acceptable to the required DIP Lenders (i) to market and implement the asset sales, assignments, closings and abandonments (if any) to the extent reflected in the Agreed Business Plan and (ii) with respect to significant executory contract and unexpired lease assumptions and rejections.
Within 135 days following the Petition Date, deliver to the Administrative Agent an updated Agreed Business Plan reasonably acceptable to the required DIP Lenders.
Within 155 days following the Petition Date, deliver proposals contemplated in the Agreed Business Plan, if any, (i) to authorized union representatives seeking modifications with respect to collective bargaining agreements and (ii) to authorized representatives of retirees seeking modifications with respect to retiree benefits, in each case, consistent with and solely to the extent required by the Agreed Business Plan (any savings and work rule changes reflected in such proposals, collectively, the ?Labor/Benefits Savings?).
Within 215 days following the Petition Date, seek Bankruptcy Court approval of any Labor/Benefits Savings consistent with the Agreed Business Plan.
To the extent that any Labor/Benefits Savings consistent with the Agreed Business Plan are not otherwise achieved on a consensual basis without the need for court relief, obtain any requested Labor/Benefits Orders within 320 days of the Petition Date.
Within 300 days following the Petition Date, file an acceptable plan of reorganization.
Within 90 days following the filing of a plan of reorganization, entry by the Bankruptcy Court of an order confirming such plan of reorganization.
the apostel ruthlessly pumped right before the RS...even denying that there will be one against all facts and announcements, just to pump the price up...it was hilaryous and a miserable action at the same time...some might have gotten in at 0.2 pre RS the days before direclty linked to apostels and few others posts...it was a shame
Thanks to you.I think you're the right person for direct contact i) because ur knowledgeble and ii) I feel you won't send to many in a short period of time.
It is amazing how responsive he is.
Also, his answers imply a lot.
He uses the word "hopefully" to state that it will be that way (we saw that clearly in past emails)...thats the way for him to share info without potential for trouble...so thats good news.
no direct answer to news doesn't surprise me in the context of your email...(he might give a hint if we were to ask directly, but at this time its not necessary to "harazz" him with it....maybe later if they forget about us again:))
With friday being a variable here, otherwise afteryesterdays trading action (as we summarized yesterday) it could be na excellent day today.
GLTYA
SAFE & SOUND INVESTMENT: consider to treat ECIG investment like a 401K = Add consistently every 2 weeks to build up your position w/o significant risks but highest potential for major reward IMHO
on a trading of~$45000 a market cap increase by ~$3000000....that's what unmanipulated trading can do...can't be to much shortcover be in it either.
Let the investors trickle in instead of supporting hype here, please!!!!!
I don't know "who told who what"....certainly I'm with you on bullshi...i just looked at the dilution pattern and, yes, of course they will RS but mabe later this year
ok thanks...what I meant is that if he sees these questions he might give an idea of when we will learn or when he will PR.
Before he did that on various occasions (such as "I am hoping to wait until after the Q2" upon PHIN's request on updates); it said a lot, also gave an idea of how he handeled PRs and that it what we need right now since he apologized in the conference and indicated that he will improve guidance policies...will he???? an email might confirm and at least tell him that we are not sedated by his vague conference points
didn;t he say he won't rest until the PPS is up...well with this volume stability is not given and it should signal to him that the market and investors won;t happily come if he falls back
ok thanks...what I meant is that if he sees these questions he might give an idea of when we will learn or when he will PR.
Before he did that on various occasions (such as "I am hoping to wait until after the Q2" upon PHIN's request on updates); it said a lot, also gave an idea of how he handeled PRs and that it what we need right now since he apologized in the conference and indicated that he will improve guidance policies...will he???? an email might confirm and at least tell him that we are not sedated by his vague conference points
if for the next two days there is a low volume then dilution might be over, and the company tries to preen no bids and RS for a while
if you have the nerves to deal with ANR, look for great potential in the OTC market of real companies with good revenue while avoiding the typical player/MM stock did you ever look at rxmd and ecig (and the future they likely will have???
lots of flipping today here, but 0.04s are doable and sustainable by EOW
welcome
Phin !!!! since you are now the established and respected "direct line" to DAN maybe you can email UKs questions and Cuins addition to DAN????
thanks
nicer format:
(site: http://otcshortreport.com/index.php?index=ecig&action=view#.VczNPbW6K1v)
Historical Short Selling Data For WPWR
Date VolShorted High Low Close ShortVol RegularVol
Aug 12 37.53% 0.0002 0.0001 0.0002 2,925,002 7,794,349
Aug 11 40.20% 0.0002 0.0001 0.0001 6,950,900 17,289,623
Aug 10 73.31% 0.0002 0.0001 0.0002 107,153,681 146,161,800
Aug 07 1.94% 0.0002 0.0001 0.0001 2,505,887 129,157,731
Aug 06 18.85% 0.0002 0.0001 0.0002 2,050,000 10,872,500
Aug 05 71.84% 0.0002 0.0001 0.0001 7,659,995 10,662,496
Aug 04 12.58% 0.0002 0.0001 0.0002 1,689,995 13,436,344
Aug 03 2.07% 0.0002 0.0001 0.0001 4,228,888 204,749,865
Jul 31 36.75% 0.0002 0.00015 0.00015 609,999 1,660,029
Jul 30 50.38% 0.0002 0.0001 0.0002 9,902,508 19,655,508
Jul 29 27.48% 0.0003 0.00015 0.0002 29,077,777 105,813,824
Jul 28 81.62% 0.0003 0.0002 0.0003 2,670,000 3,271,266
Jul 27 0.37% 0.0003 0.0002 0.0002 20,000 5,361,150
Jul 24 6.11% 0.00035 0.0003 0.0003 7,400,000 121,028,306
Jul 23 0% 0.0004 0.0003 0.0004 0 7,436,400
Jul 22 31.23% 0.0004 0.00025 0.0004 31,977,400 102,388,231
Jul 21 44.75% 0.0004 0.0003 0.0003 1,500,000 3,352,000
Jul 20 24.16% 0.0004 0.0003 0.0003 1,000,000 4,139,719
the good news is that todays little trades ($8300 after deducting my buy) show the real platform of longs without neurotic flippers and unsuccessfull MMs
ok..thanks for the info....any other long who is not afraid and has some little money to add today...come on guys
just bought another 5000 shares....anyone else of you longs with some money to spare???
apparently flippers, little shorting...no idea if it will move up over time
depends on miracles in the sector,too
I won't disturb you while dreaming about 10 cent pps. but will u please give it 3 months???
excellent excellent point...we have a true chance to get into the upper 1 cent range this week {with a jumpstart due to RXMD being on various top 50 boards} and to stay there as the new "normal" base IMO.
I do see a morning drop and a spike afterwards again tomorrow,but my goodness what a MM manipulation effort. They want to ride it +/- 100% twice a day (always the ask with the same price corrected within milliseconds form hundredthousands to just 10000 shares), yet don't succeed. Some retailers use this as their daily micro ATM.
ok....games are over..now the true effects of the ER can begin to affect the PPS (upwards IMO)
few sellers...and seems the shares end up in the right hands
yep...I remember phin posting shortly after the rs that he got in again...probably has an ave between 0.45 and 0.75 like most of us...the pumpers sold and moved on
...anyways all the sentimentality of adjusted pre RS price etc. and illusion of some to see 50%-150% gains (or losses)in one day should be left behind...solid growth/long term investment is the new ECIG...those who think differently should for their own sakes find different tickers
theoretically correct but non-sense in the context of the current loans and lenders of ECIG resp. secured by DAN ON.
You are living in the past...your wisdom would have helped on the 11th of august 2014, though.
Good luck to you, anyways.
ecigs e-commerce alone will drive the pps up; see below
From todays 8k:::
""Net sales were $12.0 million, an increase of $0.7 million, or 6%.The increase in net sales was primarily attributable to $1.6 million of net sales from the Global E-Commerce division.""
I rebalanced my portfolio recently to few OTC stocks (15%) to be flipped and just 2 long positions that I trust will grow (25% ECIG, 15% RXMD), no more NY or NA listed tickers, and 45 % of my money as for the last two years in a biotech fund which, nicely tripled. I lean back now but for nNewcomers and high AVE position holders: RXMD (like ECIG) bears enormous long term potential IMO: consider to treat it like a 401K by adding consistently a little every 2 weeks to build up your position w/o significant risks but highest chances of major reward
no sweat...will be getting into the fourties by eod again as suggested yesterday
tuesday (and wednesday) afternoon in an overall red market is the right time for a limited RXMD powerhour up to a cent and 2m volume