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GK and Lost, although I agree with GK that the market condition (trade war and further Feb rate cut) looks already getting a bit better, I still tend to assume a 50/50 chance for the bond market revisit (if there is no change to the bond offer), particularly when considering IPA support (which needs a more desperate case).

The trade war issue is fluid, which may get better, but could also get worse at any time (e.g., if China places some U.S. firms on blacklist; or U.S. does not cancel the additional tariff on the further $5500b goods; or the previous planned high level negotiation in September pushed back).

In addition to all the possible alternatives that GK mentioned, the new hope on IPA is to place it on the initial $500m bond tranche, to trigger the senior debt event. As the further tranches may come after $1b RCF money; by then the h.y.bond issuance may become much easier than now. As the initial bond has had a market test, and it has proved to be difficult/impossible to get, the pre-condition for IPA should be considered as met. The gov support at this crucial stage may help address this critical shortfall of the funds to get the project continue (and this is much better than forced to provide larger support to get the company continue its operation and get sold). The only question is whether the Gov can respond and take action fast enough. If they can announce their support first and then SM can wait for a while (for them to work out the details) and go to bond market with Gov guaranteed bond in later September. IMO, If they take action, it should work this time (with less burden than they previously intended to take).

Milothe3rd, yes, this is one of the main reasons, as they know this is a life or death issue to SM(as listed in SM's own document that other alternatives/options, e.g., M&A not likely to succeed, and administration might be the outcome).

correction of typo: without not with in the forth line, i.e., I mean
"My guess is that the rate will still be at least 13.5%, hopefully without new caveats such as warrants attached"

Parkypne: This comes from reports/articles from the reporters attended the roadshow or interviewed those participated the roadshow or negotiation (you may search for the ft and globalcapital articles on the SM bonds). They mentioned that SM used 12% in their modelling (in the presentation at the roadshow). Liberum also mentioned this and they believe SM should get a rate slightly better than 12% by comparing it with another two single B projects. 13.5% was reported after that just before the date (August 6) to announce the rate (the rate range). This information should come from SM/JPM. This must be based on the feedback (potential purchases) from the negotiation between SM/JPM and the potential investors. By putting these feedback together they would know up to what rate, all the $500m bonds could be fully sold. However, when the Trump twitter event happened, a rate higher than that might not be enough to get the bonds sold, hence the withdraw. IMO of course.

woolverstone: "....My guess is that the bonds will be re issued but with new caveats that will not be beneficial to shareholders."

Yes, the market condition (particularly on trade war and Feb rate) looks to be gradually getting better, and both single B and CCC rate dropped a little from the top of a small spike after the Trump comment.
My guess is that the rate will still be at least 13.5%, hopefully with new caveats such as warrants attached (if they can re-engage and re-convince those who almost brought the bonds before the Trump event and if what SM said or inferred was true), because SM/JPM had tried 12% and realized to get it sold they have to raise it to 13.5% (given the feedback they got from their negotiation before and on the roadshow).

On the 6th of August, Single B average rate was 6% (maximum 8.3% since 2017; maximum since 2017 10.2%) (https://fred.stlouisfed.org/series/BAMLH0A2HYBEY).
CCC was 12.03% (maximum 13.5% since 2017) (https://ycharts.com/indicators/us_high_yield_ccc_effective_yield),

13.5% is much higher than the 10.2% Single B maximum average yield. Actually it is at the CCC maximum average yield since 2017). Why has the rate to be so high? Woolverstone once asked “Looking at those figures where is the real risk in Sirius Minerals Bonds”.

From what we have read from the press, it seems that the h.y.bond investors focus on solid cash flow modelling. They are not good at bring the construction risks and marketing risks into the model. The roadshow has to do better on these critical aspects. Some investors also wish to have some equity to go with it, i.e., attaching it with a warrant.
If SM agrees to make the bond convertible or attach an amount of warrant as good as convertible bonds, it should be sold easily, given the fact that the new CB had been oversubscribed multiple times. However, this will introduce further (possibly intolerable) dilution to existing shareholders. Together with the high interest rate, this would make the h.y.bond based senior debt funding path not viable (i.e., such Initial tranche would set a tone too high for the other five $500m h.y.bond tranches to follow).
The high expectation of the potential SM h.y.bond purchasers may also relate to the too much generous offer provided to the new CB. Normally, the convertible bonds when raised as equity building or risk money, it should be raised and used before other senior bonds so as to build an asset as a guarantee for the senior debt. However, the SM new CB money was kept in escrow and to be released together with the Initial bond money. This greatly reduces the risk of the new CB, plus a 10% interest rate at maturity and the possibility to convertible at a low price. So those potential h.y.bond investors who know SM new CB well would ask why do not provide them with something similar.
These might be some of the reasons why SM/JPM has to offer a very high rate, without attaching a warrant.

Scotman and Myo, as I understand when Goodwill said "to let the project continue", he has tried to urge the gov to support SM to overcome the hurdle and continue its construction (as well as the jobs) when it is in normal operation, rather than to have the gov got into a forced situation to rescue it at late stage (e.g., in a situation similar to British Steel, in which the gov refused to support the company before it bankrupted, and than after it is bankrupted the gov was forced to provide hundreds of million pounds just to keep the company/steel factory in an operational form that is possibly acquired by a foreign company in only tens of million pounds paid the foreign company). The problem is that this first Initial bond tranche is designed for testing the water in the h.y.bond market for the JPM h.y.bond solution (the RCF is not a complete senior debt funding source, it is just a short term overdraft facility supporting the solution). If this first $500m could not be raised from h.y.bond market, even if it is raised in other means, the JPM alternative solution (i.e., the h.y.hond route) may continue with a question mark on its design/feasibility. It might be better for the gov to express its support in public (so as to raise the investor confidence) and still better to guarantee the first tranche (or just one of the second or the third tranche), rather than to provide some emergency funding at this stage.

SM may have to try again on the h.y.bond in its planned revisit, as it is very unlikely to have a fast response and concrete action from the gov. All these MP efforts may help prepare a backup plan/solution (e.g., by combining the previous bank group and the JPM solution) in case the revisit is not successful.

Yes, simply based on the 03/09 swap being pushed back; as this indicates that the 03/09 wad considered as a date after the bond issuance, i.e., when the contract was signed/made, the delay must have not happened. It should be signed before the bond issuance tested, as this is the major risky event Citi wants to hedge for.

Simpl, in addition to the ‘simple long volatility trade’ , HBK also manage fixed income products (e.g., sovereign and municipal debt and currencies primarily in G-7 nations and related derivatives) which are similar to the product used in the equity swap for the equity (Citi's SM shares). This makes it more likely to be the counter party. If so, why did they short SM after the price dropped rather than at the time when the equity swap contract was first made (well before the drop)? Possibly at that time, they thought that SM share price may grind higher towards the h.y.bond insurance date? If they are the counter party, they should do the shorting before SM announces the expected bond rate, i.e., before August 6 (to 9 when the issuance testing already started), shouldn't they?

Simpl, as the equity swap contract was first made before the August 6 share price drop, the share price at the contract time should be above 14p. This may reduce the potential on the long side as you had suggested (i.e. from 8.5p) (therefore, on the possibility of HBK as the counter party in the ES.

Simpl, you have suggested an interesting connection, which I think makes a lot of sense. Purely long 123m shares at this critical time might not be what a smart II would do.

When Citi uses equity swapping as a hedging tool, if the share price goes in opposite direction of the hedge (i.e., goes up), Citi would still get the interest from the principal (just give (or loss) all the gain from the rising share price up to the expire date to the counter party). If HBK uses SM share shorting as a hedge (of their long bet in the equity swap), when the price goes to the opposite direction (i.e., when the share price rises), they could cover the shorts before the share price goes too high. In case the share price gaps up greatly; they could use their gain from the swapped shares to compensate the loss. In the equity swap, what exchanged/swapped are the cash flows (from the shares on Citi side and fixed income investment from the counter party) rather than the principals. The SM shares in the swap still owned by Citi (just the cash flow, positive or negative, swapped, i.e., not owned by Citi during the swapping period).

Another possibility is that HBK might be one of the SM new CB investors, they short SM shares as a hedge for their new CB of SM, as did by Blackrock, Highbridge, and many others.

HBK sold 5.6m borrowed shares on the 27th of August. Among the sold, 3.58m might be from Citi and the rest from others (e.g., Capital, who always have a quite mount of their SM shares on loan; Fortunately so far Capital seems to have not sold the shares on the market (no RNS on its stake goes below 0.5%, they have 6.46% on July 11), unlike it did before April 30 in anticipation of a firm placement to get the shares back in a lower price).

Madpunter: "Some 10 year and 30 year government bonds are now paying negative interest. In other words you lose money in return for the safety."

Rates or yields on bonds (or debt obligations) move inversely to the price of bonds. The bonds can be traded on the market. When the interest rates go down, their prices are actually up. When the risk on stock market increases to a very high-level, more and more investors will sell their stocks and buy bonds (particularly government bonds). Therefore, due to the increased demand, the prices of the bonds will increase. This tells us that when the interest rates of long term government bonds become very low (or negative), it does not mean that no or less people buy them. On the contrary more investors will buy them, not only for keeping the money safe, but also for trading them with very good returns. Some days ago, I read an article, it mentioned that a negative interest bond provided a 6% return each year (some others are even higher), which means the market price of the bond increases 6% per year.

28/08/2019 RNS on Citi, crossed by 27/08/2019:

- 0 shares in direct holding (reduced, was 8.5m)
- 3.58m shares on loan (increased, was 0)
- 124m shares in Equity Swaps (increased, was 107m)
- 226m shares in new CB (changed very slightly)

Now, Citi has no direct share exposure to the market (or to the risk of stage 2 senior debt event ).
All shares are either on loan, or in equity swaps, or in new CB.
23/05/2027 CB increased 96; 13/05/2027 CB increased 3. (not seem meaningful to make such tiny change)
Total Citi stake in SM: 5.0432% (increased, was 4.8851%)

HBK increased its shorts (i.e., sold borrowed shares at around 10.5p) to 0.96% (from 0.88%) on the 27th of August, 2019.

Citi still long-term long on SM (will have all the shares in case SM is successful); but with all the short term risk shifted to others (almost no negative impact to it in case h.y.bond or construction met difficulties).

HBK made a (67m shares, about £7m) bet against SM (on its stage 2 fundraising).

Simpl, yes, maybe you are right on the Blackrock and HBK short increase on the 23rd; the market had expected a bigger impact. Trump wants to press China hard to an extreme level and at the same time does not want the market to crash. Therefore, he cleverly exaggerated a phone call at technical contact level (that might mentioned what the Chinese chief negotiator said in a Chinese conference on that day, as what the top Chinese trade officer said in the phone call), and stabilized the market. U.S. government has foretasted a statement on trade talks yesterday (in one piece of news I saw), but this still not appeared. Hope that there will be some further positive follow-up on the (arrangement of) talks, rather than more retaliations to/from each other.

SM share's rising continue today. I just saw another 3m buy after hour. Hope this will continue.

HBK Investments L.P., the 13th largest hedge fund , took a 0.73% short position on the 6th of August (the day after Trump comments and SM bond withdraw). Based the short update today, it added its shorts to 0.88% on the 23rd of August (at around 10.3p), i.e., the same day Citi sold and hedged more. If the price was push up by new and old PIs on the selling from those IIs (like HBK and Citi in a gradual price increase, than the upper trend may be difficult to maintain in case the market getting some further negative events (e.g., China adds U.S. companies on black list as U.S. did to China, more increase of shorts, RNS on selling from some other IIs). Hopefully, some positive news on SM would appear in next couple of weeks, to keep the price in an upper trend (on the daily chart).

correction:
Citi sold 7.7m shares (not 9m) by August 23 (as 1.3m shares were added to the equity swap contract).

Citi sold 9m shares by August 23 when the share price on the rising. The shares may be brought by other IIs. If Citi's selling was not picked up other IIs and if the shorts have not increased (or reduced) in past few days (by looking at the shorts update after today's close), then the number of our fellow PIs may have another big increase, possibly reaching 90000 or 100000 .

Hopefully, the increase has been caused by short-covering (let's see the shorts update soon).

By 23 August 2019:
- 10m shares on loan recalled, the sold 9m
- now, City held 8.56m shares
- Equity Swap increased 1.3m
- Exchangeable Bond kept the same
7,000,000 ES on 07/08/2019 might be a typo, Expiration date should be 07/08/2020

Now, direct exposure to SM had been further reduced (8.56m share)
Hedge through equity swaps increased slightly (i.e., most of their SM shares swapped)

CBs in escrow kept the same as last RNS.
When the first RNS appeared, some of us thought that Citi may want to show some support to SM by buying some shares from the market to let its stake over 5%; now it seems that all what they did was to make a safe play.

The equity swap contract seems to be easy to changed (looks like a digital product rather than long-term contract).

BlackRock increased its shorts from 0.56% to 0.61% on the 21st August. There should also some other shorts increase and/or decrease on the 22rd and/or the 23th of August, as the share price moved up quite lot in these few days. As GK mentioned, there also could be some smart buys from some IIs. Or, possibly BlackRock or some others stopped sell on the August 22 and 23 (and therefore, changed the buy - sell balance. As the trade war between U.S. and China , and the war between U.S. Feb and Trump escalate, if now positive news from SM (that might be one of the reason for the rise), next week may be a bit challenging for stocks.

Lots of "AT" trades at the same offer and the same bidding prices. Looks like Shorters cover (or IIs buy); while some other IIs sell. A bit confusing, but anyway, the price went higher.