$CHK Pledges Additional Assets to Reaffirm Credit Facility

This is good news for the cash strapped natural gas wasteland called Chesapeake. They reaffirmed a $4 bill credit facility. However, there are hitches and triggers which may pose a problem should things get dicey.

In connection with the redetermination, Chesapeake agreed to pledge additional assets as collateral under the Credit Agreement.

As part of the amendment, the next scheduled borrowing base redetermination review has been postponed, and the lenders have agreed not to exercise their interim redetermination right, in each case until June 2017.

The amendment includes a collateral value coverage test, which may limit Chesapeake’s borrowing capacity if its collateral coverage ratio falls below 1.25x, tested as of March 31, 2017.
The amendment provides temporary covenant relief, with the facility’s senior secured leverage ratio suspended until September 2017, then reverting to 3.5x through December 2017 and decreasing to 3.0x thereafter.

In addition, the amendment reduces the interest coverage ratio to 0.65x from 1.1x through March 2017, after which it will increase to 0.70x through June 2017, then reverting to 1.2x in September 2017 and to 1.25x thereafter.

During the period in which the existing maintenance covenants are suspended, Chesapeake has agreed to maintain a minimum liquidity amount of $500 million at all times, increasing to $750 million if its collateral coverage ratio falls below 1.1x, tested as of December 31, 2016.

The amendment also gives Chesapeake the ability to incur up to $2.5 billion of first lien indebtedness secured on a pari passu basis with the existing obligations under the Credit Agreement, subject to payment priority in favor of the existing lenders and subject to the other limitations on junior lien debt set out in the Credit Agreement.

The market is viewing this as good news and the stock is rallying. Let’s hope the company can keep its collateral coverage ratio above 1.25x and maintain liquidity of $500 mill; otherwise, this credit facility will come into immediate jeopardy.

No surprise here. I’m expecting to see this sort of thing, industry wide, as companies vie to deleverage their balance sheets. Dividends will be cut. Earnings guidance will be slashed or suspended. The strong shall survive and weather the storm.

Co sees Q1 revs down 20% QoQ to $2.16 bln vs $2.38 bln Capital IQ Consensus. Importantly, although the near-term outlook remains challenging, NOV remains strong financially. NOV’s total debt decreased by over $500 million during the first three months of 2016 and the decision to reduce the dividend is expected to improve future net cash flow by ~$615 million per year.

“We believe the dramatic reductions in capital spending are accelerating global production declines, setting the stage for a recovery in demand for NOV equipment and technologies. Reducing our dividend will allow us to preserve capital to invest in future growth opportunities and enhance the core capabilities our customers will need when industry activity increases.”

The smaller companies will likely sing a more optimistic tune, in a delusional effort to assuage investors. The clock is ticking. The industry cannot thrive at $40 WTI.

Just a few days ago, the United States Army voiced its opposition to the royalist scum at CP acquiring a vital portion of the U.S. railway system in NSC. Early this morning, the lads over at CP, Ackman’s largest holding, announced they’d terminated the bid to acquire said assets.

“We have long recognized that consolidation is necessary for the North American rail industry to meet the demands of a growing economy, but with no clear path to a friendly merger at this time, we will turn all of our focus and energy to serving our customers and creating long term value for CP shareholders,” said Chief Executive Hunter Harrison said in a statement.

Had the bid come from China, as sure as I’m sitting here, the lads over at NSC would be prepping to take classes to learn mandarin.

That Italian bad bank fund is looking like a strong catalyst for hope, as Italian treasury officials meet with their largest Italian meatball banks, in order to figure a way out from the jam they find themselves in.

NASDAQ futures are sharply higher, 20 to the good.

Over in Europe, it’s the Italians who are paving the path towards righteous indignation.

Oil is unch and gold is 0.6% to the good.

The apocalypse has been delayed.

Dow futures are off by 45, as the yen breaks 108 to the dollar. The NIKKEI is plunging lower by 1.4%, diverging from the corrupted Shanghai–which is higher by 1.67% on inflation data.

Heading into the trading week, all eyes will be on the Yen, even more than oil. You have to understand, upwards of 30% of all sovereign bond yields are negative. The consensus has been, hitherto, that negative yields would produce a weaker currency and more inflation. Being on the front lines of this experiment in central bank overplanning, the Bank of Japan officials are having an increasingly arduous time explaning the 11% gain in the Yen v the dollar for 2016.

Should this experiment fail, through the explicit and pervasive strenghtening of the Yen, I suspect a similar trade will appear in Europe, at which point world equity markets would be hamstrung by debilitating losses.

My bias is abundantly clear. This will not work. Ergo, being long treasuries, aka ‘The Ark’, will produce the safest and most effective measure of returns for the forseeable future.

NOTE: SPY futs are off by 2.5–panic and blood are flowing through the streets.

Why else would Obama and Biden bother to meet Yellen? I mean, really. All politics aside, the only outcome for ‘Wall Street reform’, that needs to be talked about with the clubbed sandwich eating Yellen, is for onerous tidings to sweep across the industry. A redistribution is in order, sacking the capricious pay packages of our elite, tossed into the everlasting infernos of the government’s barrels filled with refuse.

“In the afternoon, the president will meet with Federal Reserve Chair Janet Yellen to discuss the state of the American and global economy, Wall Street reform, and the long-term economic outlook; the vice president will also attend,” the statement said.

I wonder what Yellen will order at this heinous event? Perhaps a meated loaf on rye? Or maybe she’ll go with the egg’d salad, hold the vinegar, because her doctor told her it aggravates her flatulance.

What sort of fucking world is this, when a tabloid, piece of shit newspaper, whose stock has fallen by 24% over the past year vies to bid for one of America’s premier internet hubs?

What idiot private equity guy thinks this a good idea? I feel like I’m living in Alice in Wonderland. News media hacks are just reporting this shit like it makes sense.

‘Oh well, it looks like Joe Nuclear from the S. Bronx wants to buy all of America’s nuclear silos. We might as well report it.’

No. I don’t think so. Yahoo is fucking 15x bigger than the Daily Mail, an offal of a newspaper, the supreme shit of Great Britain.

This isn’t a serious news story; because it will never happen. That’s the way it should be reported.

What does it all mean? Could it portend to the very end of the EU, due to a BREXIT and subsequent GREXIT? Surely, the specter of such a thing has to keep bond holders up at night. Imagine the fuckery that would transpire if Portugal, Italy, Spain and Greece were no longer sucking from the tit of Germany. It would be an apocalyptic event of the first order.

These affairs are still very much far-fetched and yields are still incredibly low. But it begs your attention, as you promenade about your gated communities, picking up the shit from your neatly groomed poodles.

Last trading week marked the closing of my 10 day position in the S&P 500, via SPY. As noted in the Exodus blog, this position was taken on March the 24th at $202.15 and ended on this past Friday @ $205.21.

While not enough to festoon my bedroom with the inner–parts of my mortal enemies, the trade did almost precisely what I expected, which was to offer and deliver a small incremental increase to my account.

In addition to that, I closed out some of my XLE short last Monday. Once again, the position was taken 10 days prior when it was flagged to be overbought by the Exodus algorithms.

I have but one of the original three tranches of XLE remaining on my books. The balance of this purposeful $100k account, used to demonstrate the usefulness of the Exodus Market Intelligence Platform, has been placed in TLT until the yield curve inverts–which has been my core thesis from the beginning of the New Year. There is also a 50% cash position in my account, at the present time.

Here is my pnl, thus far.

Where do we go from here? Well, as a matter of fact, there is something actionable that flagged on Friday, in which I will be taking action on first thing Monday morning. To find out, you misers are just going to have to part with some of your beloved currencies and to join the halls of gentlemen.

See you there.

What has occurred at Sears over the past decade, at the hands of asshole hedge fund manager Eddie Lampert, is a travesty.

Now that it’s end game for the company and it is no longer able to continue as a viable business, Lampert and friends are swooping in to provide “loans” to the company, in exchange for first lien on its most prized properties.

Cascade Investment has funded $125 million of a $500 million loan that Sears raised by using about 20 of its mortgaged properties as collateral, the retailer said Friday in a statement. Another $125 million for the loan maturing in July 2017 was provided by ESL Investments, which is controlled by Lampert.

Sears said it already drew the $250 million that was financed by Cascade and ESL. The two investment firms will provide some or all of the next $250 million available on the loan facility that isn’t syndicated to other loan investors, according to the statement.

The company should be liquidated and that asshole Lampert should be broken by what he’s done to this once proud retailer. Instead, I get the feeling he’s gonna walk away from this ahead.

FYI: Cascade handles investments for Bill Gates.