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Thanks jack
Spike, I believe the whole point to a lot of shorting is hedging. So keeping them for the possibility of the bonds not happening. If the bonds were a done deal imv the share price would reflect this now and IMO it is not being reflected. I look forward to this being sorted and then we can focus on the engineering beast we have going on right now.
Within sounding naive but I assume at some point in the not too distant future the shorts are going to have to start closing, given likely bond issue within 8 weeks. Surely you wouldn’t want to be holding a short come end of August?
Or am I missing something? Just thoughts running through my mind!
"..the Company has agreed to engage J.P. Morgan Securities (acting directly or through its affiliates) to act as initial purchaser of the Initial Bonds on a best efforts basis...... In those circumstances, J.P. Morgan Securities would endeavour to procure purchasers for the full US$500 million of Initial Bonds currently contemplated as part of the Stage 2 Debt, but would not be under any obligation to acquire any Initial Bonds for which it cannot procure purchasers."
"initial purchaser of the Initial Bonds ". "would endeavour to procure purchasers for the full US$500 million of Initial Bonds."
AIUI these are senior secured bonds in the name of Sirius. Bonds that later will be available on an exchange and there will be a secondary market where the market value can change. Exchange marketability for the bonds will greatly improve their attractiveness. most co bonds are of this type.
Also AIUI JPM will sound out the market, buy the issue as 'initial purchaser' (provided market interest is suficient - a case of correct co documentation /conditionals satisfied, pricing from raters and due dili from buyers) and sell the (what would have to be imo undoctored) Sirius bonds to those who expressed interest, either by private deal or via the market.
I would think once JPM have them off their hands (as with the issuing of later bonds) then not only does the RCF become available to Sirius (with further extra borring possible) but any liability as defined in the bond terms then passes from them. The market can only work freely this way - as much as it can.
I think JPM are more concerned about level of risk exposure than maximizing the gouge potential.
All sorted soon we hope.
GK.
I don't think there is any doubt that the high-yield bonds, which are being issued by SXX (not JPM!) will therefore provide the ultimate bondholder not JPM with the security against that company's assets.
JPM are simply acting as a broker and will only buy bonds to sell on where they know they have a buyer for those bonds.
Sorry doesn’t really make that much sense now I read it back, typing on phone whilst multitasking...
But the gist is there...
Surely the whole point of the bond being senior secured and the basis of which will help towards the rating for the bond, is the fact it is secured.
Nobody would by a second hand bond without that security coming with it. If JPM sell on then maybe it will be for a small margin although most of JPMs costs for this will be covered by SXX. However, when the bond is sold on it is entirely removed from JPM and the new owner takes the bond and security it comes with.
This is the same in all secondary bond markets as far as I am aware...
JPM acting as initial purchaser enables them to charge a little extra if the opportunity arises but also allows them to control the amount they keep and the amount they syndicate.
This is the way I see it, I may be wrong tho so happy to hear any arguments...
b) borrow money at close to 0% and loan to SXX at ~15%
If JPM are taking all the risk why rely on a margin of 15% HY bond that the holders will expect HY ergo JPM make nothing for taking a huge risk. IF (and a big if) that was JPM's model here surely they would a) issue JPM back bonds at close to 0% and take the full 15% from the "loan" to SXX
No I don't agree.
The bonds will be senior secured, and those security rights (as well as the coupon entitlement, redemption rights etc) will pass from one owner of them to another when they are sold...whether that be to the first owner, the second owner or the nth owner.
Cranleigh It was a typo which i have corrected.
My point was that the wording suggests/states? that there will be no direct relationship between SXX and the bondholders.The security would be at one remove ie JPM would have a claim on the SXX assets NOT the bondholders.I am suggesting that JPM have deliberately structured it this way as they perceive a potential business opportunity to pick up a useful asset on the cheap.It also suggests that JPMs commision will be (or be supplemented by) the difference between the rate at which they " lend "to SXX and "borrow" from the bondholders.They are, after all, a bank.
Do you agree?
"The substance of my point".
I guess you mean you now accept that the bondholders will receive the coupon, not pay it back to JPM? On that basis:
1. From page 276 of the 1 May Prospectus we only know some of the terms of the Initial Bond Engagement letter, but I think, like you, that JPM are likely to take a (IMHO small) margin in one form or another on these bonds, possibly a straight commission from SXX.
2. The idea that bond buyers might have any recourse to JPM is IMHO laughable. They are senior secured bonds, so the bonds' security will be on the business, undertaking and assets of SXX. And I have an inkling that JPM just might have dabbled in the bond market before and have, with the help of their cheapo legal advisers, the nous not to be left with any potential liability.
I wonder who has the legal right to seek redress from SXX if it all goes belly up, JPM or the end owner?If JPM they might just own a mine(or large part of it).
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I think the terms of the RCF will have to be taken into account. This works on construction targets (as yet undisclosed) being met.
JPM are hedging nicely.
SM have a lot of project management to keep up with.
Cranleigh for coupon read premium, then feel free to comment on the substance of my point.
Love it when folk type apologies with a spade! ;-))
"to pay both the coupon and JPM's profit margin" - that seems most unlikely to me - surely the buyer would pay a margin to JPM, but RECEIVE the coupon. Otherwise he is effectively buying a negative-yield investment.
"Fact-based analysis" - really?
17p did not stay long, Is SH short for Shareholder?
Sorry guys, what/who is SH?
Hoping to record 17p on the price!
Just to be clear , my post at 17.09 was intended to illustrate why I think the first bond tranche for ST2 WILL be successfully sold. As usual for me , that view is supported by the best fact-based analysis I can do , rather than misplaced optimism or hope. In the course of such analysis it is inevitable , and I believe sensible, to identify the risk factors, but I am currently invested here because I believe that the currently known risks are manageable.
Milo sets out the worst case downside and though that is a possibility, at this stage I think it remote(though recent market history offers several examples to support his analysis).
What Milo 's 02.33 post does , though ,is to illustrate the difference between a successful project and a successful investment, I am looking for the latter.
To change tack slightly I have re-read the 30 april RNS, in the light of Milo's post and am still puzzled by the following (slightly precised)extract
" JPM to act as initial purchaser of the initial bonds on a "best efforts"(my quotes) basis ......not under any obligation to purchase bonds for which they cannot secure purchasers !(my exclamation)
Translated in to English I reckon that means that JPM have sole rights to buy bonds from SXX and sell them on , only if/when they have a guaranteed buyer at a higher price , thus causing the end-buyer to pay both the coupon and JPM's profit margin.In that scenario , I wonder who has the legal right to seek redress from SXX if it all goes belly up, JPM or the end owner?If JPM they might just own a mine(or large part of it).
I agree although the target is 10-12% the bonds are more likely to sell at close to 15% as this has be published, however, if you truly believe CF would allow any situation to occur that would wipe out the SH then you shouldn’t be invested anyway.
There is a huge appetite for HY bonds at the moment, already the worlds largest SWF’s have started taking a stake which shows a belief in the project. This belief may be supported further by purchasing secured bonds paying in the 12-15% range IMO.
Also the ST2 syndicated banks are still on the sideline having already spent a lot of time and money on due diligence and probably having a better knowledge of the project than anyone here...
Construction risk is already mitigated as much as possible albeit still a relatively high risk of delay but there is some fat in the timeline for this.
With the current progress on construction, the institutions already on board, the forecast margins, the TorPs, the size of deposit and projected life of mine alongside the BOD in place, I strongly believe the bonds will be highly attractive when launched.
Am I’m heavily backing them to be sold. At which point the re-rate will be sharp and fast. AIMVHO.
Welsh-Wizard,
The 7-8% was desired if we had $2b IPA guarantee ...
If you look at the CBs, they also carry 8% (ish), so a bond without convertibles is likely to be high yield, around the 15% (the ceiling that the RCF mandates).
IMO
M
Casa,
Thank you for the view.
My angle was: with new High yield bonds (likely 15%, the ceiling on the JPM restrictions, and considering that the convertible bonds carry 8%), we will have raised all but $2bil to complete the mine.
Worst case - things go sour along the way. A massive delay / issue flagging a substantial over budget (SM either taps SH, or can't fund the bonds ).... So, bondholders 'confiscate' the company from SHs.
Now the bondholders own say 99% of SM (SH left with 1%).
By this point, we spend all what we have and $1.4b from the $3.6b needed to complete the mine as current estimate.
Bonds get converted into shares, right? so at this point, the $1.5b bondholders / JPM convert this into 99% of shares. And now you have a company with no debt, looking to raise $2b to complete with less risks ahead. Then they can float the shares.
is this about right?
Hi Myo my typo , for which apols, my recent posts have been on this board and HUR , but all of the rest of the post is clearly relevant to my view of the SXX position and reading my recent posts on this board will make it clear that I have been reinvested here since early may and I am building a position on the basis that we have seen a short term bottom and that slow SP upward progress is probable in the short to medium term ,hopefully accelerating as funding on acceptable terms is established.
That doesn't mean that I am neglecting my other investments in what , I have always made clear, is a broadly based and predominantly cautious portfolio.
As to ratings, I think they are rightly treated with caution , they are generally provide by agencies at a cost met by the BORROWER and hence there is a clear conflict of interest - a conflict which many, myself included, believe lead in no small measure to the GFC of 2008. If you haven't already, I recommend some reading in that area , I am currently re-reading Andrew Ross Sorkins' "Too big too fail", which I commend as useful insight to the workings of the market during that time.
Largely because of such reservations about the reliability of ratings there is now a much greater dependence on unbiased, internal, fact-based research amongst potential lenders, and it is that I was seeking to highlight in my earlier post.
Scotman , HUR and SXX are different but then so are all investments , IMV the sensible way to spread risk is by diversification .I don't see one as intrinsically better than another nor do I have any emotional attachment to either, they are both IMV among the best current, high risk,high reward companies on the market and appear in that part of my portfolio planning.
Freudian slip?........still just half a toe or out again........with your current main interest subconsciously revealed?
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I did notice Myo. But surely when posting such long winded posts it’s easy to get blown over by ones own hot air?
HUR? Still very speculative. Ramping up to 20,000 bopd at $65USD. 1.3mUSD/d. Currently at 17,000 Bopd at 1.1mUSD/d.
More drilling to prove oil. Otherwise it’s all half a billion barrels.
It’ll be a wee while before they can claim it’s a similar project to SM in terms of revenue or life expectancy.
It’s also worthy of note that the board over in HUR have publicly stated the intend to sell when the time is right. There won’t be 90yrs of Divs in that venture.
It would be nice to see if they ever get the lift costs down to the $15USD/bbl.
It’s a far bigger gamble than SM at this moment.
I’ll stick with my pinch of salt.
So t forget the Foundation which is also seen into the fabric just like the Royalty deal with Gina.