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Bonds of Commodity Companies


EricSchleien
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Hi All -

 

I've started to poke around within the Oil & Gas Sector as pretty much anything commodity related has been beaten down. I remember in 2016, there was lots of bond opportunities in some of these names.

 

Want to start a thread so we can discuss different ideas/opportunities as they come up, and perhaps want some feedback on our ideas.

 

Best,

Eric

 

 

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Antero Midstream Corp - Pays $1.23 per share and trades at $5.85 for a juicy 21% yield.  They just gave some concession to Antero Resources.  AR is hedged for 2020 and 2021.  So no BK till 2022.  Should get 9 quarters which amounts to  $2.77 which is 47% of your cost.  AM is basically the bond in AR.  AR bonds trade at 8.4-11% yield.  So you pick up 11% more in yield.  AM bonds are trading at 7.6 to 8.2% yield. 

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Lots of year end tax loss harvesting.  I think AM suffered from this until they recently agreed to reduce fees to AR.  I'm probably not a long term holder of this.  If Nat Gas prices spike up, you should just get out and take your money.  I think we get about 2 years to see a spike in nat gas.  In a BK scenario, I think AM's assets are still needed as it is critical infrastructure.  I'm a big believer that the only way to own O&G assets is via debt, MLP, or a midstream asset.  You can't leave the capital to be re-invested. 

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Danbury bonds are interesting to me.

 

I have casually followed distressed debt from the 2015/16 crop of  E&P bankruptcies and the recovery rates were mostly awful. Gladly I just looked, but never played in that sandbox. I bought some midstream debt during the 2015 energy credit meltdown and it went very well (OKE debt was paying north of 9% back then and was BB+ rated and never even close to being distressed). There is nothing like this around right now, not even close.

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Antero Midstream Corp - Pays $1.23 per share and trades at $5.85 for a juicy 21% yield.  They just gave some concession to Antero Resources.  AR is hedged for 2020 and 2021.  So no BK till 2022.  Should get 9 quarters which amounts to  $2.77 which is 47% of your cost.  AM is basically the bond in AR.  AR bonds trade at 8.4-11% yield.  So you pick up 11% more in yield.  AM bonds are trading at 7.6 to 8.2% yield.

 

I've been slowly picking up AM shares for tax harvesting. My secondary thesis for selecting AM is the fact $1.23 distribution doesn't show up in some financial filters (e.g., SeekingAlpha hasn't caught up yet but) and looks like updates will show up come January.

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AM has worked much better than I could've imagined in the last few days.  I bought an initial lot at $7 and then bought a bunch more at $5.25 when they announced the AR/AM deal at a 23% yield.  At one point AM traded at a 4-5% yield.  Of course, that was a unsustainable price. 

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