I am looking at EXCO Resources Inc. (XCO) distressed debt. I am watching the XCO 9/15/2018 7.5% Senior debt. It is priced at $0.69/100 that yields 20.82% to maturity but I am looking for a drop down to $0.60/100.
XCO is mainly a NG play.
EXCO Resources, Inc., an independent oil and natural gas company, engages in the acquisition, exploration, exploitation, development, and production of onshore oil and natural gas properties with a focus on shale resource plays in the United States. The company holds interests in approximately 85,300 net acres located in the Haynesville and Bossier shales of East Texas and North Louisiana; approximately 52,900 net acres located in the Eagle Ford shale of South Texas; and approximately 157,000 net acres of prospective area located in the Marcellus shale of the Appalachian basin. As of December 31, 2014, it had proved reserves of approximately 1.3 trillion cubic feet equivalent; and operated 6,559 gross wells. The company was founded in 1955 and is based in Dallas, Texas.
Wilbur Ross a well known value investor now owns a 11.8% of the common shares. My thinking is that he can/should provide a good backstop to support the common shares which are inferior to the senior debt. Also, Ross has a board seat that allows him to protect his shareholder interests.
There is no rush to buy. I am waiting for the Fed's first increase and expect these bonds to sell off. The worse case scenario is that XCO defaults on the bonds and senior debt holders re-structure the debt ( including future interest payments and/or principal) into a new common share issue.
I think it is a better risk/reward than owning common shares. I have similar bets on SFY and MHR debt and preferreds. I like the senior debt positions if they are bought at enough of a discount to PAR.
Also, I plan to hold these debt position until maturity so it is a 2-3 year proposition (more if debt is restructured).
EKS |
