The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
Kilman,
Not sure I disagree with much of what you say except the cash crunch has always been the repayment of the bonds and not Tullows ability to generate FCF for capex -they forecast around 200mln-350mln for 2021 on one of the calls. But lets agree to differ.....Hey, the uncertainty around financing will disappear (even at a much higher cost)
Don't know if I'm being paranoid or the fact that I don't trust anyone, however what is being posted on this board seems to indicate that the deal is done, detail some of the terms and that we're just waiting for the announcement. Obviously possible that there could be those in the know who've heard "rumors" from a friend or perhaps been involved in considering buying into the bonds. However, if the deal is done and information is leaking why aren't we seeing the share price going up, as we're only 1p up since the rise when the RNS was released.
anton....maybe they're waiting for the RNS?
With no RBL amortisation, gross debt down, but cost of 1.8B bond higher, will be interesting to see net effect on annual cost of financing. Any budding accountants want to educate the rest of us?
Bailiff.... I don't know.... the markets make a living by screwing us ... normally they've picked all the meat off the bone by the time the RNS is released to us plebs. So just seems a bit strange that we're getting such positive confirmation in the chat and seeing no reaction in the share price. Anyway, I hope it's all true as I'm looking forward to 90p by 3pm.
No public or market knowledge of bond completion or coupon rate. Total speculation and I don’t believe a word 90% of the time on this board, to many people with their own agenda. Low volumes today, some oilers up some down. The coupon will not be above 10% and when it’s knowledge that the 1.8bn was oversubscribed the share price will rally, only to be dragged back down again by the shorters and MM until the next piece of news (drilling and/or Kenya) block out the short term noise, horse blinkers on until 2022.
JJ
"But, over next 18 months, they would have to repay $300m convertible bonds, $650m of 2022 bonds and some amortisation of the RBL facility totalling c. $410m. This would have used up all the cash on balance sheet and more."
Yes but the whole point of the last x months of negotiations was that they would try to secure an extension of maturities on the existing bonds on satisfactory terms.
In terms of the RBL, paying the amortisation of c.$410bnb over 18 months (haven't checked this figure but assume it's correct) would have reduced net debt by a corresponding amount. If what you say is right and the coupon rate is over 10%, that's maybe $75-100m per annum on the annual interest bill before any one-off fees. So over 18m, that's potentially an extra $150m interest without reducing the principle at all.
What they've done is substituted some near-term maturities for something akin to an interest-only mortgage at a ridiculous coupon rate IF and it's a big IF what you are hearing is correct.
All IMHO DYOR
Best
Happy
BumBum,
Correct to be wary of what is posted by anonymous sources, but statement out from Company stating bond done at 10.25% coupon.
Happy.....
Coupon increase is c. 4% which is $72m p.a. or $108m over 18 months. But no more redetermination nor fees related to that. And certainty is worth more.
@JJ - whilst I had posted my last message I wanted to say fair dues on your posts. Agree better to pay more interest than equity raise. GLA
I must say JJ I am pleased I apologised to you after my outburst yesterday. Great insight.
Well that RNS confirms it.....I am too suspicious :-)
Thanks JJ and well done on your information, which was spot on.
I think the net impact will be more than $72m. It may possibly be more than $100m per annum.
First, the RBL, the biggest part of the debt was, for all its flaws, a competitive facility which benefitted from declining and record low US dollar libor rates. From 2020 accounts:
"The RBL facility incurs interest on outstanding debt at US dollar LIBOR plus an applicable margin."
It doesn't state what the "applicable margin" is but the total wouldn't be anywhere near 10.25% given current libor. The bulk of the $1.8bn is refinancing the cheap RBL facility. The difference on the 2022s is 4% but they are a smaller part of the mix.
Second, cash on balance sheet c.$0.8bn will be used to pay back part of the debt so the netting effect of income interest received has now gone.
I can't see how this a good deal for shareholders. It's a scheme for the creditors to pick the carcass bare while Les, Rahul and Dorothy et. al can continue to ride the gravy train for a good few years more. I still can't believe Les get $1m p.a.
I feel sad that shareholders should rejoice at such an appalling outcome.
All IMHO DYOR
Best
Happy
HappyInvestor100,
Have some decency before you write "I feel sad that shareholders should rejoice at such an appalling outcome."
Do not be a hypocrite, given that you are betting against the shareholders. Owning up is the adult thing to do.
Just filter him.
He/she is just an absolute idiot.
I think somehow he's still trying to justify the entire stance which he has held for months that TLW had no choice but to initiate an equity raise, not only that but it was a good thing. How much would our shares be worth if $1.8B was raised as equity based on the current market cap? I shudder to think.
Rewind to just a few days ago he was telling us categorically the amount would be impossible for TLW to raise so shareholders would inevitably have to pick up the bill. What is it now..
the coupon is too high? His entire publically declared reason for shorting is now gone, will he fold I doubt it, will probably double down and use some cognitive gymnastics to show he was right all along.
I hope the lesson is learned not to paint your own reality based on one outcome, a lesson all of us should take stock from.
Happy,
You can infer the interest rate from the interest they paid in FY20 or FY19 versus the average debt outstanding debt in the corresponding year. I work it out to be c. 6-7% on the RBL but if you want to show me something else please do.
Income interest - as you stated interest rates so low, there is limited interest received in the current environment. So the lower cash balance isn't going to have much impact.
You are stretching the basis of negative comments.
If you want to be negative focus on the negatives - the concentration on single asset, the risk of failure on the well drilling, the Ghanian tax issue.
But this deal is a positive. Stop focusing on this deal
Well said jj. Unfortunately none of those negatives help @Happy in the near term with his short.
My gut feel is he has no short interest in TLW and posting negative stuff is a part of his job. I think he benefits from analysis from his employers who do the shorting.............
jj.. if you don't mind my asking, what is your background and occupation? Reason why I ask is that I've been following this chat for over a year now and chipping in with my baseless 2 cents worth every so often. However, you seem to be the first person that has come out with actual relevant information in advance of it being disclosed to the market without any apparent agenda. A rare informed opinion that appears to be based on fact rather than hypothesis. And on top of that after receiving some abuse (guilty as charged :-( .... apologies). I'm just a gut feel investor; so would like to learn a bit more about the tools you use and how you get such good information. Thanks
Antonvb, I have a background in credit markets. Plus I create excel models of the Companies I invest it. Which involves extracting revenue, cost, cash flow and then project forward with some assumptions. It is apparent here the amount of people who doesn't do that.
If people did some basic work (Tullow only report bi-annually) investors would see the impact of each $/bbl oil, the bigger impact of production levels, and the impact of CAPEX and interest bill on free cashflow.
I spend too much time, but I generally follow the cash. Valuations based on number of bbls of oil in the ground or asset value doesn't really work for me. I am a simple man who looks at the cash.
@jj.. so what are your projections for Tullow ... lets say this year and the next? Guessing you re seeing the oil price go to 80 this year as well (?)
I also would love to stop people posting (It is going to be x%, it is down x%). I would love if there was a minimum number of characters before someone could post.
It would then mean that they have thought about what they want to say & what they are seeking to gain from what they are going to say. I don't think my posts influence the direction of the market - it is a $1bn market Cap company, some postings on a free site will make very little difference.
What I am looking for is information. I can do the financials etc. What I don't understand is the "normal" decay on existing wells, what is the initial level of production from new wells, and probably most important, what is the probability of failure on new wells (a.k.a. the Turret issue in 2015 or 2016 - can't remember which).
As investors, and I am long, these are the risks now. I was confident the financial risk would be sorted (albeit I initially said 8.5-9.5% coupon (and I was berated for stating such a high coupon).
miles -
I have $65 in my model for oil. The Company will have to hedge 75% of production, as per terms of the bond so will have limited oil price exposure. But oil price is a secondary issue.
Production is the key assumption - I have (ex the assets in EG and Gabon) 55,000 this year. The new wells don't come on until 2022 (my base case, I will be happy if I am wrong). 2022 production is 63k. These numbers are net as historically there is a difference between production and sales volume - if someone can tell me why please do.
Hello jj,
But they are not going to be forced to use swaps, correct?
Do the terms require then to use collars (i.e,. buying put at $X and selling call at $(X+W)? Is anything mentioned about W?
One way or another other they could still use 3-way collars to keep some of the upside, by puying a call at $X+W+Z, with Z small.
Thank you.
ATB
They will hedge with options. They talked about collars but they will be conscious about the premium.
My humble opinion they will want to ensure capital for new well production as oppose to paying premium away. So will be cost conscious versus giving some upside.
Do you have any idea what the cost per bbl would be? $55 put ?