Off the Wires

Oil Crash Risks $19 Billion Wave of Junk Debt Defaults

March 11th, 2016  |  Source: Bloomberg

Investors are facing $19 billion in energy defaults as the worst oil crash in a generation leaves drillers struggling to stay afloat.

The wave could begin within days if Energy XXI Ltd., SandRidge Energy Inc. and Goodrich Petroleum Corp. fail to reach agreements with creditors and shareholders. Those are three of at least eight oil and gas producers that have announced missed debt payments, triggering a countdown to default.

"Shale was a hot growth area and companies made the mistake of borrowing too much," said George Schultze, founder and chief investment officer of Schultze Asset Management in New York, which has been betting against several distressed energy companies. "It’s amazing that so many people were willing to lend them money. Many are going to file for bankruptcy, and bondholders and equity are going to get wiped out en masse."

Bondholders are paying dearly for backing a shale boom that was built on high-yield credit. Since the start of 2015, 48 oil and gas producers have gone bankrupt owing more than $17 billion, according to law firm Haynes and Boone. Fitch Ratings Ltd. predicts $70 billion of energy, metal and mining defaults this year, and notes that $77 billion of energy bonds are bid below 50 cents, according to a note Thursday.

A representative at Energy XXI declined to comment. Representatives for SandRidge and Goodrich didn’t respond to requests seeking comment.

“Absent a material improvement in oil and gas prices or a refinancing or some restructuring of our debt obligations or other improvement in liquidity, we may seek bankruptcy protection,” Energy XXI said in a March 7 public filing.

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Background checks for gun buyers could save lives, U.S. study finds

March 11th, 2016  |  Source: Reuters

Laws requiring background checks for buyers of guns and ammunition, as well as requirements that firearms be traceable, could sharply reduce gun deaths in the United States, according to a study published on Thursday.

Many state-level gun regulations have little effect on the number of gun-related homicides and suicides. But "stand-your-ground" laws, which allow people to use deadly force in self-defense even if fleeing is an option, tend to raise the number of gun deaths, the study by Boston University researchers published in the Lancet medical journal found.

"Very few of the existing state-specific firearms laws are associated with reduced mortality, and this evidence underscores the importance of focusing on relevant and effective firearms legislation," said Sandro Galea, dean of the School of Public Health at Boston University, an author of the study.

"Implementing universal background checks for the purchase of firearms or ammunition, and firearm identification nationally could substantially reduce mortality in the U.S."

About 90 people die of gun-related injuries, both homicides and suicides, in the United States each day. The study found that nationwide adoption of background check laws as well as measures making it easier to track spent ammunition back to the gun that fired it could reduce gun-related deaths by as much as 80 percent.

The study looked at how deaths in 2010 were influenced by gun laws put into place in 25 states the year before.

It found that closing loopholes allowing gun buyers to avoid background checks when purchasing guns was the most effective way of reducing gun-related deaths.

Other regulations, including requiring more stringent record-keeping by gun dealers or mandating gun locks, had no measurable effect on gun-related deaths.

Opposition to gun regulations is strong in the Republican-led U.S. Congress, which has resisted measures pushed by Democratic President Barack Obama after a series of mass shootings including the massacre of 26 young children and educators in Newtown, Connecticut, in 2012.

In a January executive order, Obama imposed gun control measures that included requiring more gun buyers to undergo background checks.

Amazon to Lease 20 Boeing 767s to Build Its Own Delivery Network

March 9th, 2016  |  Source: Bloomberg Inc. is stepping up plans to build its own air delivery network, saying it will lease 20 Boeing Co. 767 freighters from Air Transport Services Group Inc., sending shares in the lessor up the most in six years.

The agreement shows Amazon’s commitment to expanding its own logistics network to make deliveries faster and more efficient. The Seattle-based company wants to lessen its dependence on United Parcel Service Inc. and FedEx Corp., which have sometimes run into delays during the busy holiday season.

“This is the first formal confirmation from Amazon that they are in fact pursing an air transportation network and more logistics services,” said Colin Sebastian, an analyst at Robert W Baird & Co. who rates the stock outperform. “We can dispense with all the speculation and actually look at something that’s real and happening.”

Shares of Air Transport Services surged the most since March 2010, rising as much as 27 percent. They gained 19 percent to $14.01 at 11:22 a.m. in New York. As part of the deal announced Wednesday, Amazon also has the right to buy as much as 19.9 percent of Air Transport Services common shares over five years at $9.73 per share, based on its Feb. 9 closing price. Amazon shares fell 1 percent to $554.47.

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Ex-Goldman Banker to Malaysia Fund Subpoenaed in U.S. Probe

March 8th, 2016  |  Source: Bloomberg

A former Goldman Sachs Group Inc. banker has become entangled in a sprawling investigation of the Malaysian state investment fund as U.S. authorities turn to him for information.

Tim Leissner was issued a subpoena about the Malaysia matter in late February, according to three people briefed on the matter, just days after Goldman Sachs confirmed he had left the firm. Leissner, a German national, was most recently chairman of the firm’s Southeast Asia operations but had taken personal leaveand relocated to Los Angeles by early this year, according to people with knowledge of the move.

From Malaysia to Switzerland to the U.S. investigators have been trying to trace whether money might have flowed out of the fund and illegally into personal accounts. Accusations have boomeranged and been called politically motivated even as authorities outside Malaysia press ahead with their inquiries.

Prosecutors in the Justice Department’s kleptocracy asset-recovery unit are investigating whether funds were embezzled from 1Malaysia Development Bhd., known as 1MDB, by politically connected people in Malaysia, the people said. The FBI’s New York office is leading the investigation and is trying to determine if any U.S. laws were broken, according to one of the people briefed on the subpoena issued to Leissner.

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Oil rises above $40 a barrel as rally extends

March 7th, 2016  |  Source:

Oil jumped above $40 a barrel for the first time this year on Monday, extending its rebound from lows hit in January to almost 50 per cent, as more traders bet that the worst of a 20-month long rout is over.

Sentiment in the oil market has improved as major Opec and non-Opec oil-producing countries prepare to meet to discuss a possible output freeze.

Saudi Arabia, Russia, Qatar and Venezuela agreed last month to freeze production levels providing other countries join them, in the first co-ordinated action to tackle a global supply glut that has hammered the industry since mid-2014.

“It’s logical for everyone to freeze their production,” UAE energy minister Suhail Al Mazrouei told reporters in Abu Dhabi on Monday, according to wire services. “It doesn’t make sense for anyone to increase production at the current prices.”

The world’s biggest oil exporters have seen their budgets slashed by a near 75 per cent price collapse that culminated in the market plumbing a 13-year low near $27 a barrel.

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Why the ruble is the world’s worst-performing currency

March 4th, 2016  |  Source:

The worst-performing major currency in the world in 2016 happens to be the Russian ruble, according to's Forex Year-To-Date Highs/Lows – Major Rates data. It is always a little tricky measuring those performance numbers, as the Russian ruble is quoted in rubles per dollar (like the yen), so more rubles per dollar reflects a weaker ruble. Regardless of whether you measure it in rubles per dollar or cents per ruble, it is not a pleasant experience to go from over 3.6 cents per ruble (under 30 rubles per dollar) five years ago to under 1.2 cents (over 85, see chart).

The trouble with the ruble, as with all commodity- and energy-dependent economies and their currencies, is oil (in green on the chart). I described the situation in my Marketmail commentary on Aug. 4, 2015, including this passage: "Tell me where the oil rout may stop and I will tell you if there is more downside to the Russian ruble and Russia's stock market. If, indeed, oil is headed under $20/bbl. in due course as the Chinese situation unravels, the ruble may break 100 on the USDRUB cross rate. The Russian dollar-denominated RTS index is at 858 at the close last week. I think it is entirely possible that it ends up in the 400-500 range."

Chesapeake Jumps After Cooperating in Shale Bid-Rigging Probe

March 3rd, 2016  |  Source: Bloomberg

Chesapeake Energy Corp. is heading for the biggest two-day increase in its history after U.S. federal prosecutors rewarded the natural gas driller with immunity from prosecution in an antitrust case against its former CEO.

Shares rose 23 percent to $4.17 at 11:20 a.m. in New York and are up 51 percent since March 1.

Chesapeake has been rallying since a March 1 announcement that the Oklahoma City-based company was cooperating in the federal prosecution of former Chairman and Chief Executive Officer Aubrey McClendon for allegedly rigging auctions for drilling rights. Chesapeake received immunity under a Justice Department leniency program that shields companies from criminal charges if they are first to report antitrust violations.

McClendon died in an Oklahoma City car crash the next day.

Mexicans Are Disappearing From Texas in Latest Twist on Oil Bust

March 2nd, 2016  |  Source: Bloomberg

The plunge in the peso has throttled the purchasing power of Silvia Guerra’s most important customers: shoppers from south-of-the-border cities like Nuevo Laredo, Monterrey and Saltillo who walk over the Gateway to the Americas International Bridge a few blocks down Convent Street.

“We are dead over here, business is dead,” Guerra says from her store in Laredo, on the Texas side of the Rio Grande, surrounded by racks of dresses and colorful rolls of fabric as people stroll in and out, without purchasing.

The Mexican currency is a casualty of the global oil-price collapse, and Guerra’s family is testament to the ugly impact of the double whammy in South Texas. She figures she’ll be out of business by May. Her husband lost his job leasing drilling equipment for Weatherford International Plc. Their daughter, an administrator for Baker Hughes Inc. in San Antonio, was told her position is at risk after more than 700 firings recently at the oil-services company. Their son, who supervises fracking operations for C&J Energy Services Ltd., has seen his paycheck shrink so much he’s looking for side work.

“The news hit like a bomb,” Silvia Guerra says, recalling when her husband was laid off 10 months ago after 16 years with Weatherford.

Crude values have plummeted 70 percent since June 2014, crippling Mexican exports and idling rigs in Texas’s Eagle Ford shale formation, which starts just north of Laredo. The peso is down 26 percent against the dollar in the past two years. All Texas border cities are feeling a pinch, with state data showing sales-tax receipts falling as much as 6 percent in the second quarter from a year ago. But merchants in Laredo say business is off 50 percent or more.

‘Laredo Sneezes’

“We are talking about millions and millions of dollars per day that Mexicans spend in Texas,” says Roberto Coronado, an economist at the Federal Reserve Bank of Dallas. “The city that depends the most on them is Laredo.”

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The Solar Company Making a Profit on Poor Africans

December 2nd, 2015  |  Source: Bloomberg

M-Kopa plans to be a $1 billion company by selling solar panels to rural residents—and providing them with credit.

Tom Opiyo is the best-performing salesperson at M-Kopa Solar, a Kenyan company selling solar power systems to the very poor. Watching him work, it’s not hard to see why. Opiyo is a pastor who used to be a musician and concert promoter, and when he’s closing a sale he never stops talking. “The electric company can sometimes leave you in the dark. With M-Kopa, the light cannot go out,” he tells a group of 15 potential customers gathered under a tree in a rural area in western Kenya on a sunny October afternoon. “If you get power from the power company, you will always be paying. But when you buy M-Kopa, it’s yours forever.”

Opiyo is tall and thin, with a closely shaved head he keeps shaded under an M-Kopa baseball cap. He infuses his pitch with quotes from the Bible and brings in an actor to break the ice with impersonations of famous Kenyan politicians. But his underlying argument is financial. Before demonstrating his product, Opiyo walks the group through a calculation, asking how much each person spends a week on kerosene. He works out what that adds up to over the course of a year and then totals a sum for the entire group. “I show them the cost of what they are using compared to what I’m going to give them,” Opiyo says. “If you bring this to their minds, they can see how they are foolish, and then you know they are going to buy.”

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As stock buybacks reach historic levels, signs that corporate America is undermining itself

November 16th, 2015  |  Source: Reuters

When Carly Fiorina started at Hewlett-Packard Co in July 1999, one of her first acts as chief executive officer was to start buying back the company’s shares. By the time she was ousted in 2005, HP had snapped up $14 billion of its stock, more than its $12 billion in profits during that time.

Her successor, Mark Hurd, spent even more on buybacks during his five years in charge – $43 billion, compared to profits of $36 billion.

Following him, Leo Apotheker bought back $10 billion in shares before his 11-month tenure ended in 2011.

The three CEOs, over the span of a dozen years, followed a strategy that has become the norm for many big companies during the past two decades: large stock buybacks to make use of cash, coupled with acquisitions to lift revenue.

All those buybacks put lots of money in the hands of shareholders. How well they served HP in the long term isn’t clear. HP hasn’t had a blockbuster product in years. It has been slow to make a mark in more profitable software and services businesses. In its core businesses, revenue and margins have been contracting.

HP’s troubles reflect rapid shifts in the global marketplace that pressure most large companies. But six years into the current expansion, a growing chorus of critics argues that the ability of HP and companies like it to respond to those shifts is being hindered by billions of dollars in buybacks. These financial maneuvers, they argue, cannibalize innovation, slow growth, worsen income inequality and harm U.S. competitiveness.

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