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Chesapeake Files For Bankruptcy, Wiping Out $7 Billion In Debt And Any Existing Equity Value

Chesapeake Files For Bankruptcy, Wiping Out $7 Billion In Debt And Any Existing Equity Value

After years of melting, the Chesapeake icecube is finally history: at exactly 350pm on Sunday afternoon, the company that launched the US shale boom, finally gave up and filed for a pre-packaged bankruptcy in the Southern District of Texas. In so doing, the company with roughly $9.5 billion in debt has become one of the biggest victims of a spectacular collapse in energy demand from the virus-induced global recession, and follows the collapse of another high-flyer in the US oil patch, Whiting Petroleum, which filed for Chapter 11 at the start of April after championing what was once the premiere U.S. shale field, the Bakken of North Dakota.

As part of its prepack agreement, Chesapeake announced that it had entered into a Restructuring Support Agreement (“RSA”) with 100% of the lenders under its revolving credit facility, holders of approximately 87% of the obligations under its Term Loan Agreement, approximately 60% of its senior secured second lien notes due 2025, and approximately 27% of its senior unsecured notes, pursuant to which Chesapeake will implement a Chapter 11 plan of reorganization to eliminate approximately $7 billion of debt.

Of course, since 73% of unsecured bondholders refused to sign off on the deal, expect a very vicious bankruptcy fight over the recoveries, as hedge funds that accumulated positions in the bonds unleash hell in their fight with the secureds (even as the equity committee claims that all classes above it should be unimpaired).

Also, we have some bad news for Jefferies, which won’t be able to repeat its hilarious attempt to fund the company in bankruptcy by selling stock to Robnhood daytraders: as part of the RSA, the Company has secured $925 million in debtor-in-possession financing lenders under Chesapeake’s revolving credit facility.  The DIP will provide Chesapeake the capital necessary to fund its operations during the Court-supervised Chapter 11 reorganization proceedings.

…click on the above link to read the rest of the article…

Transformative Thinking on Resilience in a Year of Crisis and Resistance

These are trying times for those who care about equity, sustainability and climate change—the issues that will shape our common future. In 2017, we saw the ascension of a US presidential administration that denies the reality of climate change, emboldens hate groups, and borrows from the future to bestow massive tax breaks on the wealthiest people and corporations.

Many of us watched in horror as police turned water cannons on peaceful protesters at Standing Rock, and as neo-Nazis marched in Charlottesville. We mourned the rollback of Obama-era environmental protections, carried out by fox-guarding-the-henhouse cabinet appointees. And we lamented the US withdrawal from the Paris Climate Accord, against the backdrop of accelerating climate crisis. Indeed, from deadly wildfires to devastating hurricanes, 2017 was the most expensive year on record for weather disasters in the United States.

And yet, even in these times, there are extraordinary people working to create a fairer, greener world. Over the past year, the Island Press Urban Resilience Project, has collaborated with a diverse group of activists, academics and practitioners to sound the alarm about threats and—importantly—to lift up stories of sustainable, equitable solutions.

Those stories, originally published in a wide variety of news outlets, are collected in a new e-book Resilience Matters: Transformative Thinking in a Year of Crisis, freely available online. Here, you can read about community groups that are growing local economies while reducing carbon emissions and building climate resilience. That includes California’s Cooperation Richmond, which builds local wealth by incubating worker- and community-owned co-ops. It includes UPROSE, in Brooklyn, New York, which is reimagining its industrial waterfront as a hub for green industries that create good-paying jobs. And it includes PUSH Buffalo, in New York State, which organized residents to create a 25-square-block Green Development Zone, a model of energy-efficient, affordable housing. There’s more—from activists fighting against water shutoffs in Detroit, to the burgeoning local food movement in Milwaukee.

…click on the above link to read the rest of the article…

The Supersedure State


The tumult of recent political events in many western countries has brought a new word to the lips of political commentators – populism. Generally, populism and its personification in figures such as Donald Trump and Nigel Farage has been presented in mainstream circles as a dangerous political turn, a threat to the established order of things, and not without good reason. But for those who’d like to replace the present global neoliberal economy with a more local, more equitable and more land-based or agrarian society there are overlaps with populism that raise a few questions – in particular, these three:

  1. ‘Populism’ means a politics of or for ‘the people’, which doesn’t sound like such a bad idea – so what’s the problem with it?

…click on the above link to read the rest of the article…

Kyle Bass: China’s $40 Trillion Banking System Has “Largest Imbalances I’ve Ever Seen”

Kyle Bass: China’s $40 Trillion Banking System Has “Largest Imbalances I’ve Ever Seen”

Kyle Bass’s Hayman Capital has been having a rough year thanks to its widely publicized bet against China’s currency, which has more than reversed its 2016 decline – its largest annual drop since 1994 – as the People’s Bank of China has cracked down on potentially destabilizing capital outflows.

However, Bass – unlike a handful of other former China bears who’ve been forced to scale back, or even reverse, their positions – has said that he is standing by his belief that China’s corporate sector is massively overleveraged, and overdue for a collapse that could destabilize the global economy. Chinese banks, according to Bass, have more than $40 trillion in assets held against $2 trillion in equity.

The dollar’s bull run against the yuan last year helped spark capital outflows as wealthy Chinese worried about the depreciation of their currency. In response, the PBOC tightened restrictions on foreign-exchange transactions for individuals, local companies – quashing a roaring international M&A boom – and even foreign companies, which in some cases have struggled to pull their money out of the world’s second-largest economy.

“So what’s going on right now? Let’s get the elephant out of the room. Let’s talk about China.

Kyle Bass: OK, how much time do we have?

RP: As long as you need. Where are we? What the hell’s going on?

KB: We’re in the such late stages of a game that is the largest global imbalance I’ve ever seen in my life.When you look at on balance sheet and off balance sheets, you look at on balance sheet in the banks, you look in the shadow banks. The number of total credit in the system, China is right at $40 trillion. Think about the number I just said. $40 trillion. And that’s using an exchange rate of call it 6.7 to the dollar, right? So it’s grown 1,000% in a decade. And we’re on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves.

…click on the above link to read the rest of the article…

Climate, Energy, Economy: Pick Two

Dorothea Lange Miserable poverty. Elm Grove, Oklahoma County, OK 1936
We used to have this saying that if someone asks you to do a job good, fast and cheap, you’d say: pick two. You can have it good and cheap, but then it won’t be fast, etc. As our New Zealand correspondent Dr. Nelson Lebo III explains below, when it comes to our societies we face a similar issue with our climate, energy and the economy.

Not the exact same, but similar, just a bit more complicated. You can’t have your climate nice and ‘moderate’, your energy cheap and clean, and your economy humming along just fine all at the same time. You need to make choices. That’s easy to understand.

Where it gets harder is here: if you pick energy and economy as your focus, the climate suffers (for climate you can equally read ‘the planet’, or ‘the ecosystem’). Focus on climate and energy, and the economy plunges. So far so ‘good’.

But when you emphasize climate and economy, you get stuck. There is no way the two can be ‘saved’ with our present use of fossil fuels, and our highly complex economic systems cannot run on renewables (for one thing, the EROEI is not nearly good enough).

It therefore looks like focusing on climate and economy is a dead end. It’s either/or. Something will have to give, and moreover, many things already have. Better be ahead of the game if you don’t want to be surprised by these things. Be resilient.

But this is Nelson’s piece, not mine. The core of his argument is worth remembering:

Everything that is not resilient to high energy prices and extreme weather events will become economically unviable…

…and approach worthlessness. On the other hand,…

Investments of time, energy, and money in resilience will become more economically valuable…

…click on the above link to read the rest of the article…

Big Natural Gas Driller Bites Dust, ‘Smart Money’ Gets Crushed

Big Natural Gas Driller Bites Dust, ‘Smart Money’ Gets Crushed

Natural gas driller Samson Resources is planning to file for Chapter 11 bankruptcy by August 15, when a $110 million interest payment comes due on $2.25 billion of senior unsecured junk bonds, Bloomberg reported, citing “two people with knowledge of the matter.” Samson doesn’t have the money, can’t pay, and won’t pay.

The 9.75% bonds maturing February 2020 aren’t traded anymore. The last trade was on July 29 for a quarter of a cent on the dollar. They’re part of the vast high-yield bond pile, and they have become worthless. These kinds of bonds are nicknamed “junk” for a reason.

Stockholders – private equity firms, the ultimate “smart money” – are getting wiped out too.

Samson was acquired in 2011 by a KKR-led group of private equity firms for $7.2 billion. They invested $4.1 billion of equity in the deal. Debt piled on the company made up the rest. Then Samson went on to drill this cash into the ground to produce lots of natural gas and sell it below cost, losing money all along. Now its cash is running out, and new cash to drill into the ground isn’t readily forthcoming.

In the pre-packaged bankruptcy filing, these stockholders would lose their equity stakes in the company, and their shares would become worthless.

Then there are the holders of $1 billion of second-lien covenant-lite term loans. “Covenant-lite” because the debt doesn’t provide creditors the classic protections. During the credit bubble, purposefully constructed by the Fed via its zero-interest rate policy, yield-hungry investors take on just about any risk to earn a discernable yield. Borrowers gobble up the fresh cash and set the terms. And when realty hits, this “covenant-lite” debt leaves investors twisting in the wind.

Holders of these second-lien covenant-lite term loans won’t get their money back either. But their proposal to restructure the company in court and gain control over the company is beating out a competing proposal by holders of the $2.25 billion of unsecured junk bonds that are now going up in smoke.


…click on the above link to read the rest of the article…

Low interest rates prompt savers to borrow to invest

Low interest rates prompt savers to borrow to invest

Kevin Stone plans to borrow $20K this year to invest in various stocks

Kevin Stone is 28 years old and already has over half a million dollars of debt, including a mortgage and a loan to purchase farmland. But he’s not concerned, because that apparent burden is actually helping fuel his roughly $400,000 net worth.

He’s one of a number of Canadians taking a gamble and borrowing money at historically low rates not to fuel an excessive lifestyle, but to invest in the stock market. It’s a strategy one financial planner warns isn’t for everyone, and even seasoned investors can see things go wrong.

The Bank of Canada recently lowered its benchmark lending rate by 25 basis points for the second time this year. Canada’s major banks partially followed suit and lowered their prime lending rates to 2.7 per cent.

These changes caused the rates for already low variable-rate mortgages, as well as home equity and personal lines of credit, to fall.

The low rates prompted Harry, an Albertan in his 40s who requested his last name not be used for privacy reasons, to look at his $100,000 home equity line of credit, or HELOC, a different way.

He plans to use that money over the next several years to maximize his unused RRSP contribution room. He’s withdrawn funds from his HELOCbefore to pay for a few vacations, but this will be his first time borrowing the money for investments.

Harry plans to use his annual tax returns as large, lump-sum payments against the loan, while paying down the remaining balance at a low 2.2 per cent interest rate.

“I think the bigger risk is not using other people’s money to invest,” says Stone, who blogs about his money maneuvers at Freedom Thirty Five, where he doesn’t shy away from aiming to join Canada’s one per cent. “By taking on these debts today, I can have a longer time to build up my assets.”


…click on the above link to read the rest of the article…

“It’s Time To Hold Physical Cash”, Fidelity Manager Warns Ahead Of “Systemic Event”

“It’s Time To Hold Physical Cash”, Fidelity Manager Warns Ahead Of “Systemic Event”

As Jamie Dimon recently noted while discussing the perils of illiquid fixed income markets, the statistics around “tail events” can no longer be trusted.

In other words, 6, 7, or 8 standard deviation moves that in theory should only happen once every two or three billion years may now start to show up once every two to three months. Evidence of this can be found in October’s Treasury flash crash, January’s fantastic franc fuss, and last month’s Bund VaR shock.

Why is this happening? Simple. There’s no liquidity left and the idea of efficient markets facilitating reliable price discovery is an anachronism.

Today’s broken, “mangled” (to use Citi’s descriptor) markets come courtesy of: 1)frontrunning, parasitic HFTs, 2) the post-crisis regulatory regime which, to the extent it’s well meaning, was conceived by people who never had any hope of evaluating the likely knock-on effects of their policies, and 3) central banks, who have commandeered sovereign debt markets, leaving a trail of illiquidity and shrunken repo in their wake.

Meanwhile, equity and fixed income bubbles continue to inflate on the back on central bank largesse and the only two options for rescuing a highly leveraged world are writedowns and/or inflating away the debt.

So what is a savvy investor to do in this powderkeg environment? Simple, says Fidelity’s Ian Spreadbury: own gold, silver, and physical cash. 

Via The Telegraph:

The manager of one of Britain’s biggest bond funds has urged investors to keep cash under the mattress.

Ian Spreadbury, who invests more than £4bn of investors’ money across a handful of bond funds for Fidelity, including the flagship Moneybuilder Income fund, is concerned that a “systemic event” could rock markets, possibly similar in magnitude to the financial crisis of 2008, which began in Britain with a run on Northern Rock.

…click on the above link to read the rest of the article…


Olduvai IV: Courage
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Olduvai II: Exodus
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