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Strategies & Market Trends : Turnarund Investing
NOVS 0.0666-16.0%Aug 1 5:00 PM EST
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To: KirbyJF1 who wrote (1134)5/12/2012 8:27:39 PM
From: Covenant3 Recommendations   of 1876
 
Thanks, but CHK is a short term trade. I hope to be out of the pig sometime next week. There remains a lot of bad news still to come, but now that the Q has been issued, mandatory disclosures have been taken care of for a short time, with the loan shark terms being the main known bad news yet to come.

What has been disclosed about the loan is it is LIBOR + 7% with a LIBOR floor of 1.5%. There are no penalties for early payment if the early payment is made in 2012. Whether the spread over LIBOR changes or not in the future based on time, financial statement rations, or credit ratings has not been disclosed. Neither have the early payment penalties after 2012.

I suspect the loan gets increasingly expensive as time goes on and the market will not like the complete terms when they are disclosed. The open issue is whether CHK files this material agreement with the SEC or waits until next 10-Q to release additional terms. I think CHK waits and the loan timing was deliberately right after the Q was filed. CHK will hope to have asset sales already contracted when the onerous terms are released, otherwise market reaction to the terms will be severe.

Wall Street fees for the last decade are close to retained earnings growth for the last decade. It seems a disproportionate share of CHK economics accrues to lenders and deal makers rather than shareholders. I don't want to be one of these shareholders who takes on most of the risks in exchange for half of the economics.
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