Some news items that caught my eye today:
March 8 (Bloomberg) -- Dynegy Inc., the third-largest U.S. independent power producer, likely won’t be able to comply with debt covenants this year, which may trigger a default, the company said in a regulatory filing. The company’s auditor, Ernst & Young LLP, raised “substantial doubt” that the company can continue as a going concern as the power producer said it may violate a credit facility covenant in the third and fourth quarters, according to a filing today with the U.S. Securities and Exchange Commission. Dynegy said in its filing it may need to amend or replace its credit facility or secure additional capital to continue as “a going concern over the next twelve months” as its cash flow has been reduced by low power prices. The company may also seek additional sources of liquidity through assets sales, public or private issuances of debt, equity or other securities. Its been a long road down for Dynegy. Some of their gas fired CCGT assets look attractive (at least at current prices) although coal must be causing pain. I will have to do some additional work on this name to see if it presents any opportunities.
WASHINGTON – The number of Americans who owe more on their mortgages than their homes are worth rose at the end of last year, preventing many people from selling their homes in an already weak housing market. About 11.1 million households, or 23.1 percent of all mortgaged homes, were underwater in the October-December quarter, according to report released Tuesday by housing data firm CoreLogic. That's up from 22.5 percent, or 10.8 million households, in the July-September quarter. In addition to the more than 11 million households that are underwater, another 2.4 million homeowners are nearing that point. This obviously does not bode well for the housing market or, for that matter, the banks. Jingle mail, jingle mail.... What this might help is the building materials sectors as people cant sell their house to do the American "trade up" dream and are "forced" to renovate their homes on much smaller budgets due to lack of equity loans.
ANCHORAGE, Alaska – Exxon Mobil Corp. has won a round in a dispute with environmentalists who want more money to clean up oil left on the shoreline of Prince William Sound from the 1989 Exxon Valdez tanker spill.
U.S. District Judge H. Russel Holland ruled Monday against a request from former University of Alaska marine science professor Rick Steiner. Steiner had filed a motion trying to force the oil company to pay a $92 million claim failed in 2006 by the state and federal governments.
Government lawyers are waiting for studies on the remaining oil and the effectiveness of cleanup techniques before pursuing the claim, the Anchorage Daily News reported Tuesday. "The court urges the governments and their trustees to proceed with all possible speed to complete studies that are under way and any necessary evaluation which they may require," Holland wrote.
Exxon says it doesn't have any obligation to pay more. The Irving, Texas, company paid $900 million in restitution in a 1991 settlement. But the settlement also had a "reopener" clause allowing the state and federal governments to later claim up to $100 million more from Exxon if there were unforeseen damages.
$100MM to XOM is nothing, but it is better in their pockets than in someone elses (from a credit and equity point of view). Moral of this story is that the effect - and cost - of environmental disasters does not go away quickly.
Today's $32 billion 3 Year auction closed at a 1.298% high yield: a slight decline from last month's 1.349%, which coupled with the pick up in the Bid To Cover from 3.013 to 3.219, explains why the auction prices inside of the WI at around 1.305%. Overall, Primary Dealers and Directs once again were responsible for two thirds of the auction, with just 34.4% going to Indirects, which nonetheless was an improvement from February's 27.6% which was the lowest since 2006. Look for the primaries to flip 'em to the Fed. Nonetheless, the auction went well.
American International Group Inc. (AIG)’s jet-leasing unit said it will buy 100 Airbus SAS aircraft and 33 Boeing Co. (BA) 737s, $11.8 billion in planes at list prices, as airlines refresh their fleets amid rising travel demand.
International Lease Finance Corp. said its deal with Airbus consists of 75 A320neo narrow-body jets, as the model fitted with new, more fuel-efficient engines is called, and 25 A321neo planes. That replaces a plan to buy 10 A380 superjumbo jets, which list for about $375 million each, ILFC said today. ILFC chose Pratt & Whitney’s geared turbofan engine to power 60 of the twin-engine Airbus planes, giving the unit of Hartford, Connecticut-based United Technologies Corp. (UTX) its biggest order to date for the technology.
Good win for EADS and a decent day for BA and UTX. ILFC being back in the market for planes also says something about the nature of the business from AIG's point of view. I would not think that the company would place $12B in orders if it were getting ready to get sold or spun. Also bodes well for other plane lessors. Look for a good amount of EETC deals when delivery dates near. I still think there is value in select EETC deals with a majority of narrowbody planes. The new deals have attractive LTVs as well.
Deutsche Telekom AG (DTE) has held talks to sell its T-Mobile USA unit to Sprint Nextel Corp. (S) in exchange for a major stake in the combined entity, said people with knowledge of the matter. Talks have been on and off, and a deal may not be reached, said the people, who spoke on the condition of anonymity because the talks are private. The companies haven’t been able to agree on the valuation of T-Mobile USA, which reported a drop in profit in the fourth quarter, the people said. Sprint and Deutsche Telekom shares jumped.
A merger of Sprint and T-Mobile USA would combine the third- and fourth-largest U.S. wireless providers behind Verizon Wireless and AT&T Inc. (T) T-Mobile USA may be worth $15 billion to $20 billion, according to Michael Kovacocy, an analyst at Evolution Securities in London. Sprint’s market value was $13.6 billion as of yesterday’s close.
T-Mobile USA is also discussing buying wireless spectrum from Clearwire Corp. (CLWR) as an alternative to a merger with Sprint, two people said. Deutsche Telekom’s Hoettges said last month that buying U.S. wireless spectrum from Clearwire is only one option for the German phone company. He ruled out an outright sale of T-Mobile in the U.S. Okay, think about this - Deutsche paid what $45B for T-Mobile (was Voicestream) in 2000, now it is being valued at $25B. Remember the good old tech/telecom boom - bet DT wishes they didn't. I think the combination of the two carriers would be attractive and would allow S to reduce wholesale revenues and increase ARPU as well as helping the two companies to compete with T and VZ. Even without a deal, if T-Mobile buys spectrum from Clearwire, it would certainly help Clearwire and therefore, to a smaller degree, Sprint.
Sprint bonds and equity were up over 4% on the news.
From BusinessWeek: "Laurent Gbagbo has announced on state TV that the government will now be the only entity authorized to buy or sell coffee and cocoa, the country's two main exports. The move to nationalize the country's lucrative cocoa and coffee sectors comes as financial sanctions begin to take effect against the rogue leader who has refused to leave office. International pressure has resulted in a ban on cocoa exports and Gbagbo has also been frozen out of the state's accounts at the regional central bank. The decree made public late Monday states: "The purchase and sale of coffee and cocoa will be undertaken exclusively by the state."
Don't understand why the nationalization as exports have been crushed by his refusal to leave office. That said, it will only help provide upward pressure on Cocoa and coffee - even if just for the optics of the news.
Cocoa prices:
Coffee Prices:
Yeah, no inflationary pressures here - apparently FOMC offcials and other government officials only drink water and tea.
NEW YORK—PepsiCo Inc. is raising prices for its Tropicana juice line by as much as 8% after record cold temperatures slashed this season's orange crop, the company said Tuesday.
"After evaluating the increased pressures on our business, which include a smaller-than-expected crop for the second year in a row, two extreme freezes and the coldest December on record, we've made the difficult decision to implement a price increase in the 4-to-8% range," Ok, add Pepsi to the list of things that don't spell inflation - FOMC must be caffeine free.
KUANTAN, Malaysia — A colossal construction project here could help determine whether the world can break China’s chokehold on the strategic metals crucial to products as diverse as Apple’s iPhone, Toyota’s Prius and Boeing’s smart bombs. The site of the rare earth refinery Lynas is building at the Gebeng industrial area, Kuantan, Malaysia. As many as 2,500 construction workers will soon be racing to finish the world’s largest refinery for so-called rare earth metals — the first rare earth ore processing plant to be built outside China in nearly three decades.
All of this helps explain why a giant Australian mining company, Lynas, is hurrying to finish a $230 million rare earth refinery here, on the northern outskirts of Malaysia’s industrial port of Kuantan. The plant will refine slightly radioactive ore from the Mount Weld mine deep in the Australian desert, 2,500 miles away. The ore will be trucked to the Australian port of Fremantle and transported by container ship from there. Within two years, Lynas says, the refinery will be able to meet nearly a third of the world’s demand for rare earth materials — not counting China, which has its own abundant supplies. Nicholas Curtis, Lynas’s executive chairman, said it would cost four times as much to build and operate such a refinery in Australia, which has much higher labor and construction costs. Ok, those who know me, know I follow rare earth markets and companies. Malaysia is setting itself up to be the new China as China has reduced exports AGAIN because of "environmental" concerns. This story follows on a story I saw yesterday about Molycorp potentially looking for acquisitions to help increase its heavy rare earth production. Personally, I like Lynas and great Western more than Molycorp. (disclosure: I am long Great Western)
NEW YORK—Oil prices should average $105 a barrel in 2011, the U.S. Department of Energy said, raising its forecast for this year due to the disruption of crude exports from Libya.
The DOE also said there is a 25% chance that gasoline prices would average $4 a gallon or more during the summer driving season.
The DOE's Energy Information Administration last month said it expected the price of oil—West Texas Intermediate as well as other crudes—to average $91 a barrel in 2011. That was before a wave of popular unrest swept the Arab world, deposing Egyptian President Hosni Mubarak and threatening the rule of Libyan dictator Moammar Gadhafi.
"Continuing unrest in Libya as well as other North African and Middle Eastern countries has led to the highest crude oil prices since 2008," the EIA said in its monthly Short-Term Energy Outlook. The EIA said it expects crude prices to continue rising in 2012, averaging $106 a barrel. West Texas Intermediate crude, the main oil contract traded on the New York Mercantile Exchange and the primary price benchmark used in the U.S., will cost an average of $102 a barrel this year, the EIA said, raising its forecast by $9 a barrel. In 2012, WTI will average $104 a barrel.
Really? I got long oil a while ago expecting per barrel prices to average $105-115 as the tension in the middle east is only going to increase. Watch Iran and the house of Saud.
Light crude:
TOKYO—Japanese core machinery orders rose a stronger-than-expected 4.2% in January from the previous month, the government said, as orders from manufacturers were strong on the back of fast-rising overseas demand. The figures released Wednesday by the Cabinet Office add to a recent run of data showing that Japan's economy is again growing after a contraction in the fourth quarter of 2010, when the country's gross domestic product fell 1.1% at an annual rate. The core machinery figure, fueled by a 7.2% gain in demand from manufacturers, was larger than the 3% increase expected by economists surveyed by Dow Jones Newswires and the Nikkei. Core orders had risen 1.7% in December. Overall orders, which include more volatile data for big-ticket items such as orders for new ships or electric power equipment, jumped 19.4%, the data showed. If Japan can just continue showing positive growth data, it would be encouraging. Rock in a hard place.
