most are fired outright. some technical staff stay on to do minor technical work, repair the mine after weather events and keep the mining equipment in good condition. care and maintenance has a lot to do with keeping security staff to keep watch over the mine to make sure nobody is stealing your product or machinery and that nobody is getting injured or dying on your property (thereby creating civil liability suits). keeping your top technical staff, security and management is a very costly exercise as these are typically your highest paid employees.
It’s not October 29th yet, but stock is down 72% from April 28th and your bond lost about a third of its value. I think we can call it.
Bond getting quoted in the teens.
Are you giving the all clear, so I can buy more?
Slow learner, I guess.
You may want to look at ACI for some inspiration. The 21’s were trading at ~$20 in May, now they’re pricing at $1.00.
'21’s getting quoted at 11
I see $9 bids.
yo BS i was going to post this yesterday but forgot, thoughts?
http://thinkprogress.org/climate/2016/01/11/3737929/arch-coal-files-for-bankruptcy/
We were holding ACI when I took coverage over and sold within a few months of the transition. They were so screwed, even more screwed than BTU. They operate in the higher cost US region (relative to global peers) with a focus on thermal coal (the stuff used for powerplants). They had an outrageous debt load from acquisitions made through 2011 and were getting hit by their higher cost as all the powerplants were switching to ultra cheap natural gas with the additional catalyst of regulatory pressure to get off coal. Most of these guys have take or pay contracts so the powerplants were continuing to let the coal stockpiles build up while burning the cheap natural gas they have now since that’s a little harder to store in bulk. The problem is, that this means as the natural gas phenomenon continues, you build up this huge back log of cheap coal. So even if natural gas prices came back in late 2016 or 2017, you’d have to tack on an extra year or two of slow orders as everyone burned through the coal they had, so price and volume recovery just wasn’t going to happen within the liquidity horizon.
From a recovery value standpoint, all of the most logical buyers are either similarly strapped for cash or just have no desire to pay anything but rock bottom prices and closing out mines to fulfill the EPA requirements is a huge financial liability, so you’re basically going to get nothing there unless you’re a first lein or secured tranche.
Another key takeaway is that issuers in the natural resources sector (coal, O&G, mining, etc) have been declaring bankruptcy before their liquidity runs out when they first feel they’ve reached an unsustainable position, rather than continuing to hemmorage investor cash into loss making operations. So you really can’t try to figure out when liquidity runs out and use that to build any sort of time horizon. That was the case with Arch.
Hopefully this will bring about some added balance on the supply side over a year or two as things fully begin to wind down and get sorted out but with demand so low, I think the risks throughout the sector still like to the downside. China and most of the emerging markets still have not experienced the sort of credit events within their corporate sectors that would signal any sort of inflection point.
On a high level, market valuations will remain elevated and volatility will just be temporal until money is permanently taken out of the system, which will likely occur through credit events, particularly within the emerging markets. Commodity pricing will only recover through actual restructuring and reductions which may trigger or result from those events. Lastly, the financial systems and growth engines in emerging markets will only be able to resume when some of this zombie debt load and these overhanging potential losses are flushed out and fundamentals are restored.
Great write up. The switch to running gas turbines has no doubt decreased the demand for coal, but the switch has been made domestically. New plants can only be built so quickly. Power by coal has stabilized. Sure, the decline will continue, but at a much slower rate.
I’m still holding my bonds. I have a basket of junk. Absolutely love the risk/reward of depressed debt. BTU at 9. Wish I hadn’t reached my exposure limit. BTU and CLD are certainly going concerns without their debt, CLD even with it, unlike a lot of players. Definitely don’t play in these circles if you don’t have time and can’t take the pain. No doubt I’ve been wrong so far, obviously I wouldn’t have bought if I thought they would go this low, but the path to the end doesn’t matter to me. I’m here until the fat lady sings. Don’t need many winners in the basket to come out ahead.
Blindly going long a basket of distressed issuers withouth regard to the late stage in a credit cycle and going into a commodity meltdown is not a great strategy. It takes more than a few to come out ahead, particularly at the prices you are going in at.
Not only that, the call to go long BTU at those prices misjudged a number of industry dynamics and underlying demand characteristics. Recovery value on those bonds will likely barely beat those of Arch (which appears to be less than a dollar).
Sure beat doing it even six months or a year earlier. Gas has been the issue. Time will tell. The basket is down, but it won’t take but a couple more coupons to just about eliminate the risk. I don’t work in binary terms. I never know where anything is going tomorrow. If you do, maybe we’ll know your name one day. Telling me something is going up or down doesn’t help. Assign some probabilities and expected moves. Judging yourself by whether you won or lost on each issue will make for a long career. Doesn’t really tell you if you made the right decision. You say my odds were off. Who knows. The game is not over. And that will not tell me much anyway. Still not a buyer at 9? That’s quite the probability they are going belly up soon, real soon, with minimal recovery.
What are some of your other bets that make up this “basket”?
I think its comical how you started the thread with grand predictions and such certainty about your bets and the future of coal all based on abysmal reasoning and lack of industry knowledge before slowly walking back to, “well, time will tell” and “I never know for certain where things are headed” or “it’s really all just about general probabilities” etc etc. I hear the same thing from all the buy the dip PM’s around here as they cover their tracks and try to rationalize their position at double the benchmark in coal and O&G. Dropping a bunch of vague catchwords and phrases like “makes for a long career” or my personal favorite here “invest through the cycle” doesn’t make the position any less bad. Particularly when so many of the PM’s were all so confident and brash about their predictions going into it. It was failure to consider the probabilities and false certainty that made those positions. But now that the fundamentals have been laid, it’s certainty that will drive the path forward.
Well, everything I said in the original post has not changed or been disproved. I never pounded my chest about pricing. I even acknowledged early would be painful. You’ve pounded your chest. And you’ve been right. Hope you have some realized gains in the equity. I’m sure you sold everything you could. Give yourself a cookie. I own a number of commodity and energy related bonds. If they’re all zeros, there are bigger problems to worry about. In the mean time, I’ll happily sit on my basket without a care in the world.
26’s at $2 with liquidity tapped out. If the EPA rules against self-bonding, that’ll probably come back to haunt Cloud as well.
Those oil names are probably getting burnt pretty bad. I’d love to know what all else is in there.
Ain’t pretty for sure. Not my first foray into distressed debt. Not going to make or break anything. Whole basket down around fifty percent. Peabody down over 90% and i bought a little more recently. Glutton for punishment. I also bought some seriously distressed bank debt in March of 2009. That worked out. Not looking good here.
It’s officia, prices are flat at $6:
It’s kind of crazy that this firm was B2 a year ago.
Coal is going the way of the dodo I’m afraid. Like diesel fuel for cars, it’s just too dirty.
Hey BS, why have the unsecured bonds doubled since bk? Traded at 6 after going flat, now 12. I’m sure you would say look at it as a gift and run, but any insight? Seen a few theories floated, but all probably wags.
It’s outside my area of expertise at this point. I was looking at the bonds myself after bankruptcy wondering if there was some value there but just never got around to doing a good analysis.
I’m just guessing, but probably a combination of several factors:
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Transitioned to a new pool of investors (ie distressed / bankruptcy shops) who see an avenue towards higher recovery value and are snapping these up to build a large enough stake to drive negotiations.
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Improving commodity values boosting underlying asset values.
There’s a huge sensitivity to coal prices here I’d imagine. If prices remain low, there are few buyers for assets and many of the mines will likely be closed at a high cash cost that will hurt recovery values. With a boost to coal prices, the outlook becomes better with more mines sold or kept in operation and a better outlook for bonds.
I’d be worried about the bonding issue, but it’s really far outside my expertise at this point.