By now everyone knows that Chesapeake is a slow motion trainwreck: whether it is internal management issues, which eventually will culminate with the long overdue termination of the company's head (something the company had much control over and could avoid, but didn't, and should result in the sacking of the entire board for gross negligence), or plunging gas prices (something it had far less control over, but could have hedged properly, yet didn't), what is absolutely certain is that the firm's cash flow just isn't what it used to be. In fact, according to some, it is quite, quite negative. What, however, people do not know is that under ZIRP, when every basis point of debt return over 0% is praised, and an epic scramble ensues among hedge for any yielding paper no matter how worthless, the balance sheets of companies just do not matter. In other words, for companies that have massive leverage, high interest rates, negative cash flow, which all were corporate death knells as recently as 2008, the capitalization structure is completely irrelevant. We said this a month ago when we cautioned, precisely about Chesapeake, that "to all those scrambling to short the company: beware. CHK has a history of being able to fund itself with HY bonds and other unsecured debt come hell or high water. If and when the stock tanks, the short interest will surge on expectations of a funding shortfall. Alas, courtesy of the Fed's malevolent capital misallocation enabling, we are more than confident that the firm will be able to issue as much HY debt (unsustainably at 10%+, but that is irrelevant for the short-term) as it needs, crushing all short theses. What this means, simply, is that anyone who believes traditional fundamental analysis will and should work in the CHK case is likely to get burned." Sure enough, we were again proven right: Chesapeake just announced, following today's epic drubbing, that it is refinancing its secured debt facility (with its numerous restrictive covenants) with $3 billion in brand new Libor+7.00% unsecured paper (courtesy of Goldman and Jefferies). In doing so, CHK just got at least a one year reprieve.
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http://www.zerohedge.com/news/why-corporate-balance-sheets-just-dont-matter-new-zirp-normal
Cdad
Cdad's picture
Not scary at all. Look, just get yourself a super computer and set it up in the room next to where Duncan Niederauer takes his afternoon dump [when he is not otherwise pimping absolute crap Chinese IPOs]. After that, set up an RS feed from the Fed. Then just start front running everything, especially when everything turns out to be nothing...like today's session, in fact.
You'll be on your way to millionaire status in no time which will, apparently, cause you to regularly take pictures of your dinner table and twitpic the picture to the world, for some odd and unknown reason. You will also be able to lay claim to being smarter than everyone around you even as you say incredibly stupid things on television because...well, because other people are also saying those same things.
Fair warning, however, you will also likely be prone to running and plunging off of cliffs without really knowing what you are doing, not unlike how snipe run into a paper bag where a flashlight beam is being pointed. Also, you will have an affinity for shiny bobbles, even if said bobbles are directly in the path of moving buses and trucks.
Unless, of course, you like spending your time digging through the details to figure out the facts about a company. Pffffft.
Good luck, future little urban achiever.
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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