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Old 05-16-2016, 01:41 PM   #2401
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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?
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".
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Old 05-16-2016, 01:51 PM   #2402
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Penn West also has a ton of ugly liabilitys that most companies don't have. One of the main reasons their properties aren't so valuable IMO.
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Old 05-16-2016, 02:05 PM   #2403
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Originally Posted by Tron_fdc View Post
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?
Could be any or all of the above.

The point is though, that the debt would have been taken on at an earlier, healthier point. They are not leveraging now (and the banks are not letting them continue to leverage further), they are simply burdened with the debt they already had, combined with lower asset values and revenue numbers.

That is the essence of insolvency. Asset value of $10M and debt of $4M - no problem. Then the asset value drops to $1M and you still have debt of $4M, then the bank gets nervous and demands the loan, because your ability to service it is substantially compromized.
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Old 05-16-2016, 02:08 PM   #2404
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Joe investor's exposure is exactly the same as it is for any publicly traded company: he/she can lose 100% of their investment.

If the creditors (banks etc) demand their loans, and there is nothing left for the shareholders, party's over.
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Old 05-16-2016, 02:31 PM   #2405
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I understand that. What I'm getting at is if this starts to happen to companies downtown, does someone (ie government) step in? Or do we just let them collapse? Again, I don't know how bad it is DT, but if it gets REAL ugly then what?

I'm ranting a bit here, but is there seriously not enough bloat to cut in order to get onside on the covenants?
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Old 05-16-2016, 02:34 PM   #2406
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It will be a cold day in hell before any sort of bailout for O&G happens IMO.

Not enough Unions.
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Old 05-16-2016, 02:43 PM   #2407
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I think my problem is I read "The Big Short", watched the movie (while yelling at my TV) and now I'm seeing some of the same behaviours in Alberta. Are the banks making bad decisions overextending credit? Are these companies run by morons?

I use RBC and they are the most risk-adverse bank I've ever dealt with. We get a LOC based on 50% receivables, 50% inventory when we BARELY owe them 25% of our total assets. Even then they give us a hard time.

So if they use RBC as well, who lets these guys leverage billion dollar companies and what's his contact info?
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Old 05-16-2016, 02:51 PM   #2408
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It will be a cold day in hell before any sort of bailout for O&G happens IMO.

Not enough Unions.
If they bailed out Oil Companies I would laugh myself into a hernia.

And then promptly move to Monaco. My application to become Lichtensteinien Royalty has not gone well.
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Old 05-16-2016, 03:17 PM   #2409
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I understand that. What I'm getting at is if this starts to happen to companies downtown, does someone (ie government) step in? Or do we just let them collapse? Again, I don't know how bad it is DT, but if it gets REAL ugly then what?

I'm ranting a bit here, but is there seriously not enough bloat to cut in order to get onside on the covenants?
It's not a new thing or the first in line. Calgary OG companies having their loans called in and folding happens all the time. There are already a few significant examples this year IIRC. Bailouts have never happened. Spyglass went under. Lightstream is facing the same thing (90 days to cover debt) or face receivership right now, etc. This is pretty normal.

Cutting bloat can't create debt re-payments out of thin-air. You actually have to make a big move like selling your core assets/properties, etc. for good value but it's not a good sellers market now.

-edit Terra Energy went down in March as Weitz pointed out. The receiver (E&Y) couldn't even take on the properties because they didn't want the liabilty. A lot of these assets are not easy to sell because of all the environmental regulations and liability that come with them.

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Old 05-16-2016, 03:19 PM   #2410
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Terra just went under.
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Old 05-16-2016, 03:20 PM   #2411
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Terra just went under.
Oh. Thats not good.
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Old 05-16-2016, 03:21 PM   #2412
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By just I mean back in March.
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Old 05-16-2016, 03:25 PM   #2413
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By just I mean back in March.
I dont think I'd heard that.
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Old 05-16-2016, 03:34 PM   #2414
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I think my problem is I read "The Big Short", watched the movie (while yelling at my TV) and now I'm seeing some of the same behaviours in Alberta. Are the banks making bad decisions overextending credit? Are these companies run by morons?

I use RBC and they are the most risk-adverse bank I've ever dealt with. We get a LOC based on 50% receivables, 50% inventory when we BARELY owe them 25% of our total assets. Even then they give us a hard time.

So if they use RBC as well, who lets these guys leverage billion dollar companies and what's his contact info?

But what type of underlying assets do you have in your business? How much are those worth? You don't own your inventory unless your payables are current as your suppliers will have PMSIs. SO effectively you have receivables and goodwill.

You don't have billions of dollars of assets. Assuming an efficient market, the equity value is what is left after the debt is paid off. In that case, Penn Wet is still worth their market cap + whatever their debt obligations are. That could still be in the billions.
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Old 05-16-2016, 07:08 PM   #2415
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Penn West's mess truly started back in Oct '07. The inevitability of everything after is almost comically obvious in hindsight.

I suppose you could argue that the previous October's decision on trusts was the first nail, as only a handful of the trusts really made it through the other side okay.
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Old 05-16-2016, 07:55 PM   #2416
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From a technical analysis perspective, the oil chart is very bullish now. I wouldn't be surprised if we hit $50 this week.

In my opinion, we get up to $60 some time this summer and see some significant resistance there. Long term, though, I think we only go up from here.
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Old 05-16-2016, 08:23 PM   #2417
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But what type of underlying assets do you have in your business? How much are those worth? You don't own your inventory unless your payables are current as your suppliers will have PMSIs. SO effectively you have receivables and goodwill.

You don't have billions of dollars of assets. Assuming an efficient market, the equity value is what is left after the debt is paid off. In that case, Penn Wet is still worth their market cap + whatever their debt obligations are. That could still be in the billions.
Without getting into too much detail, we own land. If it was worth $30 our LOC is $5. Our inventory (paid) is about $10 and our receivables $6.

We run lean. Like really really lean. We learned back in the 80's how volatile oil was, and got out of it. Over the years we have had to reinvent ourselves due to a number of market forces like import pricing, family buyouts, government interference, margin pressures, environmental issues, you name it. When it happens we adapt; 4 or 5 years ago we lost some key accounts and our sales dropped 50% in a year. The bank slapped a bunch of covenants on our LOC, so we went scorched earth and adapted. Owners didn't get paid while we reorganized and built up cash. People lost jobs. It sucked. But we made it through and are in better financial shape for it.

I seriously feel like I'm taking crazy pills when I see what's going on downtown. There are well run companies no doubt. But there seems to be some real issues with some key decision makers, and it's scary when that includes a company as big as Pennwest.
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Old 05-16-2016, 08:28 PM   #2418
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I think it comes down to valuations of economicly recoverable barrels a company has on lease. When those are reassessed they can go from billions to zero.
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Old 05-17-2016, 04:45 AM   #2419
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One of the biggest issue is property taxes and surfsce rentals. Costs are basically fixed and too high for todays economic reality.
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Old 05-17-2016, 06:28 AM   #2420
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Connacher has filed for creditor protection
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