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Re: UPLMQ - why is it up?One of the comments to this article was particularly well stated, and disagreed with the articles author: adf14 Bonds are now 53 bid. What the author is not taking into account is asset value not captured in ev/ebitda calculations. They have tremendous reserve life. Buyers of bonds - and they may be incorrect - are focused on a few things: Asset value - may be able to sell off non-producing assets and achieve significant proceeds. Reserve life extends decades. So selling extra reserves drops straight to the bottom line and does not affect ev/ebitda based valuation (this is a general inefficiency for all long-lives e&p's). 60+ (!!!) year reserve life, economical at relatively low costs. Asset quality/cost is considered top decile, trophy asset. Recent MRD transaction by range suggests that bonds are worth par and equity could have value. Note large distressed bond investor just filed as owning 11%. Note: one has to be constructive gas prices; if you believe in $3.5 gas this can work. If that assumption is incorrect it will not. Costs -unused $80mm pipeline contract expires, sg&a is too high. Mgmt costs will be cut. Net net ebitda projections will be higher by at least $100-150mm for any nat gas price modeling. At say 6 X's ebitda valuation that represents a LOT of extra value Equity - crazy as it sounds, in the scenario above the equity really could recover $10+. Will it and should you bet the ranch? No. Nat gas may not go up in time, acquirers may not continue to pay premium prices and the upside could be captured instead by the unsecureds who could take all the equity. If the bullish stuff happens and the equity holders get nothing the bonds could recover well over $100. Sounds crazy? Yes but it has happened numerous times in cyclical industries coming out the other side. In conclusion, yes, most bk equity speculations are simply stupid. They overwhelmingly DO NOT work. Shareholders are wiped out. But occasionally they are home runs. If the UPL bankruptcy is ongoing, and the winter is cold, the arguments for an equity recovery grow much stronger. Especially if someone accumulates stock and leads the charge. Again don't bet the ranch, but an interesting spec. I own some. |
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