{"id":10937,"date":"2015-08-12T07:59:56","date_gmt":"2015-08-12T12:59:56","guid":{"rendered":"http:\/\/olduvai.ca\/?p=10937"},"modified":"2015-08-12T07:59:56","modified_gmt":"2015-08-12T12:59:56","slug":"big-natural-gas-driller-bites-dust-smart-money-gets-crushed","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=10937","title":{"rendered":"Big Natural Gas Driller Bites Dust, \u2018Smart Money\u2019 Gets Crushed"},"content":{"rendered":"

Big Natural Gas Driller Bites Dust, \u2018Smart Money\u2019 Gets Crushed<\/a><\/h3>\n

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,\u00a0Bloomberg<\/u><\/a>\u00a0reported, citing \u201ctwo people with knowledge of the matter.\u201d Samson doesn\u2019t have the money, can\u2019t pay, and won\u2019t pay.<\/p>\n

The 9.75% bonds maturing February 2020 aren\u2019t traded anymore. The last trade was on July 29 for a quarter of a cent on the dollar. They\u2019re part of the vast high-yield bond pile, and they have become worthless. These kinds of bonds are nicknamed \u201cjunk\u201d for a reason.<\/p>\n

Stockholders \u2013 private equity firms, the ultimate \u201csmart money\u201d \u2013 are getting wiped out too.<\/p>\n

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\u2019t readily forthcoming.<\/p>\n

In the pre-packaged bankruptcy filing, these stockholders would lose their equity stakes in the company, and their shares would become worthless.<\/p>\n

Then there are the holders of $1 billion of second-lien covenant-lite term loans. \u201cCovenant-lite\u201d because the debt doesn\u2019t 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 \u201ccovenant-lite\u201d debt leaves investors twisting in the wind.<\/p>\n

Holders of these second-lien covenant-lite term loans won\u2019t 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.<\/span><\/p>\n

 <\/p>\n

…click on the above link to read the rest of the article…<\/p>\n","protected":false},"excerpt":{"rendered":"

Big Natural Gas Driller Bites Dust, \u2018Smart Money\u2019 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,\u00a0Bloomberg\u00a0reported, citing \u201ctwo people with knowledge of the matter.\u201d Samson doesn\u2019t have the money, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2,3],"tags":[8023,1851,8024,6614,1297,554,8022,3843,4254,4255],"class_list":["post-10937","post","type-post","status-publish","format-standard","hentry","category-economics","category-energy-2","tag-chapter-11-bankruptcy","tag-commodity-price-collapse","tag-csh","tag-equity","tag-junk-bonds","tag-natural-gas","tag-samson-resources","tag-smart-money","tag-wolf-richter","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10937","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=10937"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10937\/revisions"}],"predecessor-version":[{"id":10938,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/10937\/revisions\/10938"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=10937"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=10937"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=10937"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}