Opinions
Well, the 'fairy tale' that people are promoting that BTU is someone going to make it it just as much an opinion, and a far worse opinion, since none of the facts or the progression of the company so far, support such an outcome.
Even if coal prices went up 100% from current levels, BTU would just be a 'zombie' since everything would be needed to cover the debt and leave nothing left over for the common shares.
The only way BTU is going to be ok is if a miracle happens, and the price of coal rises enough to save the company. The only way that even has a chance to happen is if the price of oil and gas rise enough so that coal become competitive again.
CHK, a large producer of NG (largest in the country?), is one the edge of bankrupty. The only way they were able to pay off at maturity a $500 million bond offering was buy borrowing against the credit line, which I was surprised the bank allowed them to do, since now when CHK goes bankrupt the bank will be stuck with all kinds of CHK loans.
If anyone really thought that BTU was going to recover, they would be better off buying the bonds. The bonds are higher in priority and have a much better payoff with at least a x10 if the bonds paid off at maturity.
The common shares would not have such a rise since so much of the gross margins would go to the bonds that there would be little to nothing left over.
Of course, the problem is that except for the secured bank line and the first lien bonds, no one is going to be expected to recover anything. The junior bonds and common shares will probably receive warrants in a Chapter 11 plan that will never have any value.
One interesting trade people can prepare for, is that after BTU files Chapter 11, they can expect a spike when the muppets rush into the stock after the DIP financing gets annouced. This trade is a high risk because if you time it wrong you will get stuck with worthless shares, plus you have to count on the retail market to be so stupid that they do not understand how DIP financing works in a bankruptcy. i.e. That the DIP financing is higher in priority than the common and any recover for the common is now further away.
Louis J. Desy Jr.
Disclosure: I own BTU puts and expect to buy more in the days up to April 1 and April 15, 2016.
