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Originally Posted by Tron_fdc
So what are they borrowing against? Receivables? Stock value? Sure your ratios take a beating as your stock value drops, but that debt must be tied to SOMETHING...?
I'm wondering how much exposure joe investor has when a stock like Pennwest gets delisted and the banks start calling loans causing a bankruptcy. If this becomes the norm does the government step in here and bail them out? I'm not being alarmist (maybe a little) but I'm curious what happens if this becomes common. It's going to have a pretty big trickle down effect.
I still have a hard time coming to terms with the lending. Are they leveraging every last asset in the company to keep expanding it, and when it implodes they take a buyout and walk away? I mean, there are well run companies DT still turning a profit, what are they doing differently? They're not run by sailors?
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Joe investor is exposed as a common shareholder no matter what the investment. Debt (bank facilities and bondholders) will have better security than common stockholders. That is true for any company. Obviously the difference here is that Penn West seems to be on the imminent path to collapse. It will be up to how amenable the banks are to adjust the terms of the facilities. I don't have any personal knowledge of the situation, but it does seem like a lost cause from the media reports. Penn West isn't that much different than many other O&G companies in Calgary (overleveraged, too gassy, high cost/low price environment), but they did have a few significant missteps that others haven't suffered from, notably the restatement of its financial statements and MD&A.
Having said all of that, I don't see any reason or appetite for government bailouts. I don't see how this would necessarily be a "first domino".