Being Punished For Doing The Obvious: Peabody Unloosen Energy Corp Edition
It is no hugger-mugger that US of America coal companies are financially stretched.
But Peabody Energy is especially stretched.
Here - courtesy Thomson Reuters - is a cost nautical chart for the 6% coupon Peabody debt due Nov 2018. Its a large outcome alongside around ii billion at appear upwards value outstanding.
The cost is 3. That is three cents inwards the dollar.
The yield to maturity is 266 percent.
If Peabody survives without a restructure this slice of debt volition brand yous over xxx times your money.
Obviously the debt marketplace position thinks that Peabody is dead. Dead parrot dead.
Go country that to the equity market.
This is Peabody stock yesterday courtesy Yahoo Finance.
Yes the stock was upwards forty percent.
And if the companionship survives it is vanishingly unlikely to live a xxx bagger.
So it is form of obvious that yous should live long the debt, brusk the equity. It is real difficult to build a scenario where yous lose.
Except that it was darn obvious 100 per centum agone inwards the trade.
So hither is what happened. Some wise-cracking hedge fund seat on the trade, long the debt, brusk the equity. Can't lose except that they did lose.
They are getting smashed.
The debt has come upwards downwards quickly from 25 to three wiping out the long side of that transaction. The equity has doubled.
And our pathetic director - having been perfectly rational - is left nursing to a greater extent than or less sore losses.
Ugly.
A full general comment
This is happening all over the unloose energy complex at the moment. Debt in addition to equity markets disagree in addition to the disagreement has got wider in addition to wider.
There volition live to a greater extent than or less real bruised arbitrage managers this week.
Very bruised indeed.
John
PS. Disclosure inwards order. We convey a few of these trades on inwards tiny size. We are downwards low-single-digits this month. We are non enjoying it. But nosotros are enjoying it far to a greater extent than than the soon-to-be-out-of-work director who decided to seat the Peabody merchandise on.
J
But Peabody Energy is especially stretched.
Here - courtesy Thomson Reuters - is a cost nautical chart for the 6% coupon Peabody debt due Nov 2018. Its a large outcome alongside around ii billion at appear upwards value outstanding.
The cost is 3. That is three cents inwards the dollar.
The yield to maturity is 266 percent.
If Peabody survives without a restructure this slice of debt volition brand yous over xxx times your money.
Obviously the debt marketplace position thinks that Peabody is dead. Dead parrot dead.
Go country that to the equity market.
This is Peabody stock yesterday courtesy Yahoo Finance.
Yes the stock was upwards forty percent.
And if the companionship survives it is vanishingly unlikely to live a xxx bagger.
So it is form of obvious that yous should live long the debt, brusk the equity. It is real difficult to build a scenario where yous lose.
Except that it was darn obvious 100 per centum agone inwards the trade.
So hither is what happened. Some wise-cracking hedge fund seat on the trade, long the debt, brusk the equity. Can't lose except that they did lose.
They are getting smashed.
The debt has come upwards downwards quickly from 25 to three wiping out the long side of that transaction. The equity has doubled.
And our pathetic director - having been perfectly rational - is left nursing to a greater extent than or less sore losses.
Ugly.
A full general comment
This is happening all over the unloose energy complex at the moment. Debt in addition to equity markets disagree in addition to the disagreement has got wider in addition to wider.
There volition live to a greater extent than or less real bruised arbitrage managers this week.
Very bruised indeed.
John
PS. Disclosure inwards order. We convey a few of these trades on inwards tiny size. We are downwards low-single-digits this month. We are non enjoying it. But nosotros are enjoying it far to a greater extent than than the soon-to-be-out-of-work director who decided to seat the Peabody merchandise on.
J
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