(Nicholas Gordon) Hidden away in Coinbase Global’s disappointing first-quarter earnings report—in which the U.S.’s largest cryptocurrency exchange reported a quarterly loss of $430 million and a 19% drop in monthly users—is an update on the risks of using Coinbase’s service that may come as a surprise to its millions of users.
In the event the crypto exchange goes bankrupt, Coinbase says, its users might lose all the cryptocurrency stored in their accounts too.
StudioPortoSabbia/Shutterstock
Thomas Cook, a 178-year-old British travel company and airline, declared bankruptcy early Monday morning, suspending operations and leaving hundreds of thousands of tourists stranded around the world.
The travel company operates its own airline, with a fleet of nearly 50 medium- and long-range jets, and owns several smaller airlines and subsidiaries, including the German carrier Condor. Thomas Cook still had several flights in the air as of Sunday night but was expected to cease operations once they landed at their destinations.
Condor posted a message to its site late Sunday night saying that it was still operating but that it was unclear whether that would change. Condor’s scheduled Monday-morning flights appeared to be operating normally.
About 600,000 Thomas Cook customers were traveling at the time of the collapse, of whom 150,000 were British, the company told CNN.
The British Department for Transport and Civil Aviation Authority prepared plans, under the code name “Operation Matterhorn,” to repatriate stranded British passengers. According to the British aviation authority, those rescue flights would take place until October 6, leading to the possibility that travelers could be delayed for up to two weeks.
Initial rescue flights seemed poised to begin immediately, with stranded passengers posting on Twitter that they were being delayed only a few hours as they awaited chartered flights.
The scale of the task has reports calling it the largest peacetime repatriation effort in British history, including the operation the government carried out when Monarch Airlines collapsed in 2017.
Costs of the flights were expected to be covered by the ATOL, or Air Travel Organiser’s License, protection plan, a fund that provides for repatriation of British travelers if an airline ceases operations.
Airplanes from British Airways and EasyJet would be among those transporting stranded passengers home, according to The Guardian, as well as chartered planes from leasing companies and other airlines. Thomas Cook Airlines’ destinations included parts of mainland Europe, Africa, the US, the Caribbean, and the Middle East. Airplanes were being flown to those destinations on Sunday night, according to the BBC.
Global debt and liquidity crisis discussion…
Source: by David Slotnick | Business Insider
An alarming number of older Americans are being forced into bankruptcy, as the rate of people 65 and older who have filed has never been higher – at three times what it was in 1991, while the rate of bankruptcies among Americans age 65 and older has more than doubled, according to a new study by the The Bankruptcy Project.
Older Americans are increasingly likely to file consumer bankruptcy, and their representation among those in bankruptcy has never been higher. Using data from the Consumer Bankruptcy Project, we find more than a two-fold increase in the rate at which older Americans (age 65 and over) file for bankruptcy and an almost five-fold increase in the percentage of older persons in the U.S. bankruptcy system. The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect.
The median senior filing bankruptcy enters the system $17,390 in debt, vs. an average net worth of $250,000 for their non-bankrupt peers.
According to the study, a three-decade shift of financial risk from government and employers to individuals is at fault, as aging Americans are dealing with longer waits for full Social Security benefits, 401(k) plans replacing employer-provided pensions and more out-of-pocket spending on items such as health care.
“When the costs of aging are off-loaded onto a population that simply does not have access to adequate resources, something has to give,” the study says, “and older Americans turn to what little is left of the social safety net — bankruptcy court.”
“You can manage O.K. until there is a little stumble,” said Deborah Thorne, an associate professor of sociology at the University of Idaho and an author of the study. “It doesn’t even take a big thing.”
The data gathered by the researchers is stark. From February 2013 to November 2016, there were 3.6 bankruptcy filers per 1,000 people 65 to 74; in 1991, there were 1.2.
Not only are more older people seeking relief through bankruptcy, but they also represent a widening slice of all filers: 12.2 percent of filers are now 65 or older, up from 2.1 percent in 1991.
The jump is so pronounced, the study says, that the aging of the baby boom generation cannot explain it.
Although the actual number of older people filing for bankruptcy was relatively small — about 100,000 a year during the period in question — the researchers said it signaled that there were many more people in financial distress. –NYT
“The people who show up in bankruptcy are always the tip of the iceberg,” said Robert M. Lawless, an author of the study and a law professor at the University of Illinois.
In the Bankruptcy Project’s latest study – posted online Sunday and submitted to an academic journal for peer review, studies personal bankruptcy cases and questionnaires submitted by 895 BK filers aged 19 through 92.
The questionnaire asked filers what led them to seek bankruptcy protection. Much like the broader population, people 65 and older usually cited multiple factors. About three in five said unmanageable medical expenses played a role. A little more than two-thirds cited a drop in income. Nearly three-quarters put some blame on hounding by debt collectors.
The study does not delve into those underlying factors, but separate data provides some insight. The median household led by someone 65 or older had liquid savings of $60,600 in 2016, according to the Employee Benefit Research Institute, whereas the bottom 25 percent of households had saved at most $3,260. –NYT
Meanwhile, by 2013 the average Medicare beneficiary’s out-of-pocket health care expenses ate up around 41% of the average Social Security payment, according to the Kaiser Family Foundation.
Moreover, more people are entering their senior years in debt. For many, that means a mortgage – roughly 41% of senior debt in 2016, which is nearly double the 21% rate from 1989, according to the Urban Institute.
Perhaps not surprisingly, the lowest-income households led by individuals 55 or older carry the highest debt loads relative to their income. More than 13 percent of such households face debt payments that equal more than 40 percent of their income, nearly double the percentage of such families in 1991, the employee benefit institute found. –NYT
What isn’t helping is that many older parents report that helping their children contributed to their bankruptcies. Seattle bankruptcy attorney Marc Stern says he’s seen parents co-sign loans for $10,000 or $20,000 for their kids, only to find themselves on the hook when their offspring couldn’t service the debt.
“When you are living on $2,000 a month and that includes Social Security — and you have rent and savings are minuscule — it is extremely difficult to recover from something like that,” he said.
Others parents had had co-signed their children’s student loans. “I never saw parents with student loans 20 or 30 years ago,” Mr. Stern said.
“It is not uncommon to see student loans of $100,000,” he added. “Then, you see parents who have guaranteed some of these loans. They are no longer working, and they have these student loans that are difficult if not impossible to pay or discharge in bankruptcy, and these are the kids’ loans.”
CEO of Elder Law of Michigan, Keith Morris, said that bankruptcy was a hot topic among callers to a legal hotline he established for older adults.
“They worked all of their lives, and did what they were supposed to do,” he said, “and through circumstances like a late-life divorce or a death of a spouse or having to raise grandkids, have put them in a situation where they are not able to make the bills.”
The U.S. Supreme Court ruled on Monday that an underwater second mortgage cannot be extinguished, or “stripped off,” as unsecured debt for a debtor in bankruptcy, according to the Supreme Court‘s website.
In the cases of Bank of America v. Caulket and Bank of America v. Toledo-Cardona, Florida homeowners David Caulkett and Edelmiro Toldeo-Cardona had filed for Chapter 7 bankruptcy and had second mortgages with Bank of America extinguished by a bankruptcy judge following the housing crisis of 2008 based on the fact that they were completely underwater. On Monday, just more than two months after hearing arguments for the case, the Supreme Court ruled in favor of the bank.
When the Supreme Court heard arguments for two cases on March 24, attorneys representing Bank of America contended that the high court should uphold a 1992 decision in the case of Dewsnup v. Timm, which barred debtors in Chapter 7 bankruptcy from “stripping off” an underwater second mortgage down to its market value, thus voiding the junior lien holder’s claim against the debtor. Attorneys for the debtors argued that the Dewsnup decision was irrelevant for the two cases.
Bank of America appealed the bankruptcy judge’s ruling for the two cases, but the 11th Circuit U.S. Court of Appeals upheld the bankruptcy court’s decision in May 2014, going against the Dewsnup ruling by saying that decision did not apply when the collateral on a junior lien (second mortgage) did not have sufficient enough value. The bank subsequently appealed the 11th Circuit Court’s ruling.
The Supreme Court ruled on Monday that the second mortgages should not be treated as unsecured debt, hence upholding the Dewsnup decision. Justice Clarence Thomas, in delivering the opinion of the court, wrote that, “Section 506(d) of the Bankruptcy Code allows a debtor to void a lien on his property ‘[t]o the extent that [the] lien secures a claim against the debtor that is not an allowed secured claim.’ 11 U. S. C. §506(d). These consolidated cases present the question whether a debtor in a Chapter 7 bankruptcy proceeding may void a junior mortgage under §506(d) when the debt owed on a senior mortgage exceeds the present value of the property. We hold that a debtor may not, and we therefore reverse the judgments of the Court of Appeals.”
“The Court has spoken, and we respect its ruling,” said Stephanos Bibas, an attorney for defendant David Caulkett, in an email to DS News. “But we are disappointed that the Court extended its earlier precedent in Dewsnup v Timm, even though it acknowledged that the plain words of the statute favor giving relief to homeowners such as Messrs. Caulkett and Toledo-Cardona. We hope that in the near future, the Administration’s home-mortgage-modification programs will offer more relief to homeowners in this situation struggling to save their homes.”
A Bank of America spokesman declined to comment on Monday’s Supreme Court’s ruling.
Click here to read the complete text of the Court’s ruling.
Last week, amid a renewed bout of crude carnage, Morgan Stanley made a rather disconcerting call on oil.
“On current trajectory, this downturn could become worse than 1986: An additional +1.5 mb/d [of OPEC supply] is roughly one year of oil demand growth. If sustained, this could delay the rebalancing of oil markets by a year as well. The forward curve has started to price this in: as the chart shows, the forward curve currently points towards a recovery in prices that is far worse than in 1986. This means the industrial downturn could also be worse. In that case, there would be little in analysable history that could be a guide to this cycle,” the bank wrote, presaging even tougher times ahead for the O&G space.
If Morgan Stanley is correct, we’re likely to see tremendous pressure on the sector’s highly indebted names, many of whom have been kept afloat thus far by easy access to capital markets courtesy of ZIRP.
With a rate hike cycle on the horizon, with hedges set to roll off, and with investors less willing to throw good money after bad on secondaries and new HY issuance, banks are likely to rein in credit lines in October when the next assessment is due. At that point, it will be game over in the absence of a sharp recovery in crude prices.
Against this challenging backdrop, we bring you the following commentary from Emanuel Grillo, partner at Baker Botts’s bankruptcy and restructuring practice who spoke to Bloomberg Brief last week.
* * *
Via Bloomberg Brief
How does the second half of this year look when it comes to energy bankruptcies?
A: People are coming to realize that the market is not likely to improve. At the end of September, companies will know about their bank loan redeterminations and you’ll see a bunch of restructurings. And, as the last of the hedges start to burn off and you can’t buy them for $80 a barrel any longer, then you’re in a tough place.
The bottom line is that if oil prices don’t increase, it could very well be that the next six months to nine months will be worse than the last six months. Some had an ability to borrow, and you saw other people go out and restructure. But the options are going to become fewer and smaller the longer you wait.
Are there good deals on the horizon for distressed investors?
A: The markets are awash in capital, but you still have a disconnect between buyers and sellers. Sellers, the guys who operate these companies, are hoping they can hang on. Buyers want to pay bargain-basement prices. There’s not enough pressure on the sellers yet. But I think that’s coming.
Banks will be redetermining their borrowing bases again in October. Will they be as lenient this time around as they were in April?
A: I don’t know if you’ll get the same slack in October as in April, absent a turnaround in the market price for oil. It’s going to be that ‘come-to-Jesus’ point in time where it’s about how much longer can they let it play. If the banks get too aggressive, they’re going to hurt the value for themselves and their ability to exit. So they’re playing a balancing act.
They know what pressure they’re facing from a regulatory perspective. At the same time, if they push too far in that direction, toward complying with the regulatory side and getting out, then they’re going to hurt themselves in terms of what their own recovery is going to be. All of the banks have these loans under very close scrutiny right now. They’d all get out tomorrow if they could. That’s the sense they’re giving off to the marketplace, because the numbers are just not supporting what they need to have from a regulatory perspective.
Consumers taking out a second mortgage will now have to consider the fact that if they encounter financial difficulties and file for bankruptcy, they won’t be able to strip off the additional loan obligation.
The Wall Street Journal reports that the Supreme Court ruled in favor of banks when it came to determining that struggling homeowners can’t get rid of a second mortgage using Chapter 7 bankruptcy protection, even if the home’s value is less than the amount owed on the first mortgage.
Monday’s unanimous ruling involved two cases in which Florida homeowners sought to cancel their second mortgages – issued by Bank of America – under the argument that when both primary and subsequent loans are underwater, the second is worthless.
The homeowners in the cases were previously allowed by lower courts to nullify the second mortgages. Back in 2013, those rulings were affirmed by the Atlanta-based 11th U.S. Circuit Court, the Associated Press reports.
However, Bank of America maintained that the rulings conflicted with Supreme Court precedent, arguing that even if the primary mortgage is underwater, it shouldn’t affect the lien securing the second loan.
According to the bank, there remains a possibility that the second loan would be repaid if the property’s value rose in the future.
The company also claimed that after the Circuit Court ruling, hundreds – if not thousands – of struggling homeowners had moved to nullify their second loans, the AP reports.
Justice Clarence Thomas said on Monday that the SCOTUS decision took into consideration the shifting nature of property, the WSJ reports.
“Sometimes a dollar’s difference will have a significant impact on bankruptcy proceedings,” he wrote in the decision.
Supreme Court: ‘Underwater’ Homeowners Can’t Void Second Mortgages in Bankruptcy [The Wall Street Journal]
Supreme Court says homeowners underwater on loans can’t void second mortgage in bankruptcy [The Associated Press]
“Come down to Houston,” William Snyder, leader of the Deloitte Corporate Restructuring Group, told Reuters. “You’ll see there is just a stream of consultants and bankruptcy attorneys running around this town.”
But it’s not just in Houston or in the oil patch. It’s in retail, healthcare, mining, finance…. Bankruptcies are suddenly booming, after years of drought.
In the first quarter, 26 publicly traded corporations filed for bankruptcy, up from 11 at the same time last year, Reuters reported. Six of these companies listed assets of over $1 billion, the most since Financial-Crisis year 2009. In total, they listed $34 billion in assets, the second highest for a first quarter since before the financial crisis, behind only the record $102 billion in 2009.
The largest bankruptcy was the casino operating company of Caesars Entertainment that has been unprofitable for five years. It’s among the zombies of Corporate America, kept moving with new money from investors that had been driven to near insanity by the Fed’s six-plus years of interest rate repression.
Next in line were Doral Financial, security services outfit Altegrity, RadioShack, and Allied Nevada Gold. The first oil-and-gas company showed up in sixth place, Quicksilver Resources [Investors Crushed as US Natural Gas Drillers Blow Up].
Among the largest 15 sinners on the list, based on Bankruptcydata.com, are six oil-and-gas related companies. But mostly in the lower half. So far, larger energy companies are still hanging on by their teeth.
This isn’t the list of a single troubled sector that ran out of luck. This isn’t a single issue, such as the oil-price collapse. This is the list of a broader phenomenon: too much debt across a struggling economy. And now the reckoning has started.
So maybe the first-quarter surge of bankruptcies was a statistical hiccup; and for the rest of the year, bankruptcies will once again become a rarity.
Wishful thinking? The list only contains publicly traded companies that have already filed. But the energy sector, for example, is full of companies that are owned by PE firms, such as money-losing natural gas driller Samson Resources. It warned in March that it might have to use bankruptcy to restructure its crushing debt.
Similar troubles are building up in other sectors with companies owned by PE firms. As a business model, PE firms strip equity out of the companies they buy, load them up with debt, and often pay special dividends out the back door to themselves. These companies are prime candidates for bankruptcy.
Restructuring specialists are licking their chops. Reality is setting in after years of drought when the Fed’s flood of money kept every company afloat no matter how badly it was leaking. These folks are paid to renegotiate debt covenants, obtain forbearance agreements from lenders, renegotiate loans, etc. At some point, they’ll try to “restructure” the debts.
“There is a ton of activity under the water,” explained Jon Garcia, founder of McKinsey Recovery & Transformation Services.
Just on Wednesday, gun maker Colt Defense, which is invoking a prepackaged Chapter 11 filing, proposed to exchange its $250 million of 8.75% unsecured notes due 2017 for new 10% junior-lien notes due in 2023, according to S&P Capital IQ/LCD. But at a pro rata of 35 cents on the dollar!
Equity holders are out of luck. The haircut would “address key issues relating to Colt’s viability as a going concern,” the filing said. It would allow the company “to attract new financing in the years to come.” Always fresh money!
Also on Wednesday, Walter Energy announced that it would skip the interest payment due on its first-lien notes. In early March, when news emerged that it had hired legal counsel to explore restructuring options, these first-lien notes plunged to 64.5 cents on the dollar and its shares became a penny stock.
None of them has shown up in bankruptcy statistics yet. They’re part of the “activity under water,” as Garcia put it.
But these Colt Defense and Walter Energy notes are part of the “distressed bonds” whose values have collapsed and whose yields have spiked in a sign that investors consider them likely to default. These distressed bonds, according to Bank of America Merrill Lynch index data, have more than doubled year over year to $121 billion.
The actual default rate, which lags behind the rise in distressed debt levels, is beginning to tick up. Yet it’s still relatively low thanks to the Fed’s ongoing easy-money policies where new money constantly comes forward to bail out old money.
But once push comes to shove, equity owners get wiped out. Creditors at the lower end of the hierarchy lose much or all of their capital. Senior creditors end up with much of the assets. And the company emerges with a much smaller debt burden.
It’s a cleansing process, and for many existing investors a total wipeout. But the Fed, in its infinite wisdom, wanted to create paper wealth and take credit for the subsequent “wealth effect.” Hence, with its policies, it has deactivated that process for years.
Instead, these companies were able to pile even more debt on their zombie balance sheets, and just kept going. It temporarily protected the illusory paper wealth of shareholders and creditors. It allowed PE firms to systematically strip cash out of their portfolio companies before the very eyes of their willing lenders. And it prevented, or rather delayed, essential creative destruction for years.
But now reality is re-inserting itself edgewise into the game. QE has ended in the US. Commodity prices have plunged. Consumers are strung out and have trouble splurging. China is slowing. Miracles aren’t happening. Lenders are getting a teeny-weeny bit antsy. And risk, which everyone thought the Fed had eradicated, is gradually rearing its ugly head again. We’re shocked and appalled.
It has been a persistent ugly list of municipal bankruptcies: Detroit, MI; Vallejo, San Bernardino, Stockton, and Mammoth Lakes, CA; Jefferson County, AL. Harrisburg, PA; Central Falls, RI; Boise County, ID.
There are many more aspirants for that list, including cities bigger than Detroit. Detroit was the test case for shedding debt. If bankruptcy worked in Detroit, it might work in Chicago. Illinois Gov. Bruce Rauner wants to make Chapter 9 bankruptcies legal for cities in his state, which is facing its own mega-problems.
“Bankruptcy law exists for a reason; it’s allowed in business so that businesses can get back on their feet and prosper again by restructuring their debts,” Rauner said. “It’s very important for governments to be able to do that, too.”
His plan for sparing Illinois that fate is to cut state assistance to municipalities, which doesn’t sit well with officials at these municipalities. Chicago Mayor Rahm Emanuel’s office countered that balancing the state budget on the backs of the local governments is itself a “bankrupt” idea.
Puerto Rico doesn’t even have access to a legal framework like bankruptcy to reduce its debts, but it won’t be able to service them. It owes $73 billion to bondholders, about $20,000 per-capita – more than any of the 50 states. If you own a muni bond fund, you’re probably a creditor. Bond-fund managers use its higher-yielding debt to goose their performance. But now some sort of default and debt relieve is in the works. The US Treasury Department is involved too.
“People before debt,” the people in Puerto Rico demand. It’s going to be expensive for bondholders.
That’s the ugly drumbeat in the background of New York Fed President William Dudley’s speech today at the New York Fed’s evocatively named workshop, “Chapter 9 and Alternatives for Distressed Municipalities and States.”
So they’re doing workshops on municipal bankruptcies now….
“We at the New York Fed are committed to playing a role in ensuring the stability of this important sector,” he said, referring to the sordid finances of state and local governments. But he wasn’t talking about future bailouts by the Fed. He was issuing a warning to municipalities and their creditors about “the emerging fiscal stresses in the sector.”
It’s a big sector. State and local governments employ about 20 million people – “nearly one in seven American workers.” The sector accounts for about $2 trillion, or 11%, of US GDP. And its services like public safety, education, health, water, sewer, and transportation, are “absolutely fundamental to support private sector economic activity.”
The problem is how all this and other budget items have gotten funded. There are about $3.5 trillion in municipal bonds outstanding. So Dudley makes a crucial distinction:
When governments invest in long-lived capital goods like water and sewer systems, as well as roads and bridges, it makes sense to finance these assets with debt. Debt financing ensures that future residents, who benefit from the services these investments produce, are also required to help pay for them. This principle supports the efficient provision of these long-lived assets.
“Unfortunately,” he said, governments borrow to “cover operating deficits. This kind of debt has a very different character than debt issued to finance infrastructure.” It’s “equivalent to asking future taxpayers to help finance today’s public services.”
In theory, 49 states require a balanced budget every year, but it’s easy enough to “find ways to ‘get around’ balanced budget requirements” and cover operating expenses with borrowed money, he said, including the widespread practice of “pushing the cost of current employment services into the future” by underfunding pensions and retiree healthcare benefits for current public employees.
The total mountain of unfunded liabilities remains murky, but estimates for unfunded pension liabilities alone “range up to several trillion dollars.” With these unfunded liabilities, employees are the creditors. That would be on top of the $3.5 trillion in official debt, where bondholders are the creditors.
And eventually, high debt levels and the provision of services clash as in Detroit and Stockton, he said, and render public sector finances “unsustainable.”
But cutting services to the bone to be able to service the ballooning debt entails a problem: citizens can vote with their feet and move elsewhere, thus reducing the tax base and economic activity further. To forestall that, municipalities may alter their priorities and favor the provision of services over debt payments. “This may occur well before the point that debt service capacity appears to be fully exhausted,” he said.
In other words, the prioritization of cash flows to debt service may not be sustainable beyond a certain point. While these particular bankruptcy filings [by Detroit and Stockton] have captured a considerable amount of attention, and rightly so, they may foreshadow more widespread problems than what might be implied by current bond ratings.
That was easy to miss: foreshadow more widespread problems than what might be implied by current bond ratings. Dudley in essence said that current bond ratings – and therefore current bond prices and yields – don’t reflect the ugly reality of state and municipal financial conditions.
It was a warning for states and municipalities to get their financial house in order “before any problems grow to the point where bankruptcy becomes the only viable option.”
It was a warning for public employees and retirees – in their role as creditors – to not rely on promises made by their governments concerning pensions and retiree healthcare benefits.
And it was a warning for municipal bondholders that their portfolios were packed with risky, but low-yielding securities that might end up being renegotiated in bankruptcy court, along with claims by public employees and what’s left of their pension funds. And it was a blunt warning not to trust the ratings that our infamous ratings agencies stamp on these municipal bonds.
Some states are worse than others. Even with capital gains taxes from the booming stock market and startup scene raining down on my beloved and crazy state of California, it ranks as America’s 7th worst “Sinkhole State,” where taxpayers shoulder the largest burden of state debt.
Sabine Oil & Gas Corp. became one of the first companies to warn investors that it faces a cash shortage from a reduced credit line, saying Tuesday that it raises “substantial doubt” about the company’s ability to continue as a going concern.
It’s going to get worse: “About 10 firms are having trouble finding backup financing, said the people familiar with the matter, who asked not to be named because the information hasn’t been announced.”
Why now? Bloomberg explains that “April is a crucial month for the industry because it’s when lenders are due to recalculate the value of properties that energy companies staked as loan collateral. With those assets in decline along with oil prices, banks are preparing to cut the amount they’re willing to lend. And that will only squeeze companies’ ability to produce more oil.
Those loans are typically reset in April and October based on the average price of oil over the previous 12 months. That measure has dropped to about $80, down from $99 when credit lines were last reset.
That represents billions of dollars in reduced funding for dozens of companies that relied on debt to fund drilling operations in U.S. shale basins, according to data compiled by Bloomberg.
“If they can’t drill, they can’t make money,” said Kristen Campana, a New York-based partner in Bracewell & Giuliani LLP’s finance and financial restructuring groups. “It’s a downward spiral.”
As warned here months ago, now that shale companies having exhausted their ZIRP reserves which are largely unsecured funding, it means that once the secured capital crunch arrives – as it now has – it is truly game over, and it is just a matter of months if not weeks before the current stakeholders hand over the keys to the building, or oil well as the case may be, over to either the secured lenders or bondholders.
The good news is that unlike almost a decade ago, this time the news of impending corporate doom will come nearly in real time: “Publicly traded firms are required to disclose such news to investors within four business days, under U.S. Securities and Exchange Commission rules. Some of the companies facing liquidity shortfalls will also disclose that they have fully drawn down their revolving credit lines like Sabine, according to one of the people.”
Speaking of Sabine, its day of reckoning has arrived
Sabine, the Houston-based exploration and production company that merged with Forest Oil Corp. last year, told investors Tuesday that it’s at risk of defaulting on $2 billion of loans and other debt if its banks don’t grant a waiver.
Another company is Samson Resource, which said in a filing on Tuesday that it might have to file for a Chapter 11 bankruptcy protection if the company is unable to refinance its debt obligations. And unless oil soars in the coming days, it won’t.
Its borrowing base may be reduced due to weak oil and gas prices, requiring the company to repay a portion of its credit line, according to a regulatory filing on Tuesday. That could “result in an event of default,” Tulsa, Oklahoma-based Samson said in the filing.
Indicatively, Samson Resources, which was acquired in a $7.2-billion deal in 2011 by a team of investors led by KKR & Co, had a total debt of $3.9 billion as of Dec. 31. It is unlikely that its sponsors will agree to throw in more good money after bad in hopes of delaying the inevitable.
The revolver raids explain the surge in equity and bond issuance seen in recent weeks:
Many producers have been raising money in recent weeks in anticipation of the credit squeeze, selling shares or raising longer-term debt in the form of junk bonds or loans.
Energy companies issued more than $11 billion in stock in the first quarter, more than 10 times the amount from the first three months of last year, Bloomberg data show. That’s the fastest pace in more than a decade.
Breitburn Energy Partners LP announced a $1 billion deal with EIG Global Energy Partners earlier this week to help repay borrowings on its credit line. EIG, an energy-focused private equity investor in Washington, agreed to buy $350 million of Breitburn’s convertible preferred equity and $650 million of notes, Breitburn said in a March 29 statement.
Unfortunately, absent an increase in the all important price of oil, at this point any incremental dollar thrown at US shale companies is a dollar that will never be repaid.
Finally, speaking of Samson, its imminent bankruptcy should not come as a surprise. Back in January we laid out the shale companies which will file for bankruptcy first. The recent KKR LBO was one of them.
Many more to come as the countdown to the day of reckoning for the US shale sector has just about run out.
by Barbara Hollingsworth SkyMall, the mail-order catalogue company that hawked its quirky wares to millions of bored airline passengers for 25 years, has filed for bankruptcy.
The in-flight purveyor of items you didn’t know you needed – from a glow-in-the-dark toilet seat to a serenity cat pod to baby blanket that looks like a tortilla – has gone belly up, the apparent victim of stiff competition from online retailers.
The company’s revenue plunged from $33.7 million in 2013 to $15.8 million during the first nine months of 2014, and company officials said e-commerce was largely to blame.
“With the increased use of electronic devices on planes, fewer people browsed the SkyMall in-flight catalog,” acting CEO Scott Wiley said in a statement on Friday.
The decreased readership led Delta Air Line to cancel the catalogue last year and Southwest Airlines planned to follow suit, according to the bankruptcy documents.
“We are extremely disappointed in this result and are hopeful that SkyMall and the iconic ‘SkyMall’ brand find a home to continue to operate.”
So does the Twitterverse, which erupted with sadness and nostalgia at news of the loss:
“Goodbye life-size Garden Yeti: A tribute to SkyMall, the best inflight magazine ever,” tweeted one fan.
“What the hell am I going to read on flights now? A real book?!? I think not,” tweeted another.
Easy Money 
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