20
Jul
Monday Morning – Let 2Q For Energy Earnings Begin
News flash: Small Business Lender CIT Rescued By The Government Bondholders, Proof Free Markets Still Exist. See story here. Markets happy to see things like this can still happen.
(HAL) reported a beat, (WFT) reported a brick (details below).
The Week Ahead:
- Monday 7/20: Leading economic indiators (due out at 10 am EST today, expected up 0.7%)
- Tuesday 7/21: No economic data release scheduled
- Wednesday 722: EIA Oil Inventory Report, No economic data release scheduled
- Thursday 7/23: EIA Natural Storage Report, initial jobless claims (exp 550,000), existing home sales (exp 4.85 mm)
- Friday 7/24: Consumer sentiment.
In Today's Post:
- Holdings Watch
- Commodity Watch
- Stuff We Care About Today - HAL, WFT
- Odds & Ends
Holdings Watch:
- $10KP:
- $20,600
- 46% Cash
- The Wiki Holdings Tab is updated.
Commodity Watch:
Crude oil recovered 6% last week to close at $63.56. The 12 month crude strip is now trading at $68.35. This morning crude is trading up about a buck on the back of stronger equity market futures and a weaker dollar which is again on the edge of breaking key support levels.
Natural gas rebounded 9% last week to close at $3.67. The 12 month strip is now trading at $5.03. This morning gas is trading slightly with oil and despite disappointing final weather results for last week (see below).
- Weather Watch: Mild temps continue.
- Week Before Last: 60 Cooling Degree Days (cooler than normal) which produced a 90 Bcf injection.
- Last Week: 70 CDDs vs 77 expected. This was slightly cooler than expected and slightly cooler than last year but was also nonetheless the second warmest week of the year recorded to date.
- This Week's Forecast: 73 CDDs. Based on the weather forecasts for the week that I am seeing this looks like an over statement of how hot it is going to be. Not surprising as the CPC has overestimated how hot it will be every week this year since mid May.
- Tropics Watch: A tropical wave near the Windward Islands became less organized overnight. The seasonal pattern of tropical waves coming off Africa is solidifying on schedule.
Stuff We Care About Today
This Week's Earnings Calendar - this table is also archived on the calendar tab.
.jpg?resize=429%2C396)
Note: The WFT conference call is at 10:30 EST, not 9:30 EST as stated in the table.
Earnings Watch:
HAL Reports Top and Bottom Line Beats (albeit on downwardly revised numbers)
- The 2Q Numbers:
- Revenue of $3.5 B vs $3.43 B expected
- Vs $3.9 B in 1Q09
- Operating Margins
- N. American margins fell to 6% from last quarter's 14%
- International margins were flat at 20%
- N. American margins fell to 6% from last quarter's 14%
- EPS of $0.30 (ex items) vs $0.27 expected.
- Vs $0.55 in 2Q08
- Last quarter HAL beat by a penny
- Revenue of $3.5 B vs $3.43 B expected
- Favorite Quotes:
- "Weak global demand and volatility in the commodity markets continue to weigh on the oilfield services industry ."
- "Due to the continued weakness in natural gas demand, reflected in the high injection rates for working gas storage, we believe it is unlikely that there will be a meaningful recovery in natural gas prices and, consequently, drilling activity for the remainder of the year." As expected.
- “We believe that the long-term economic fundamentals of our industry are bright. While we have taken prudent steps to control costs and improve financial flexibility, we continue to execute our strategy of maintaining disciplined investments in technology, capital equipment, and global infrastructure to ensure that we are well positioned at the other side of this cycle. The successful execution of this strategy has been validated by approximately $3.5 billion of recent contract awards."
- "Weak global demand and volatility in the commodity markets continue to weigh on the oilfield services industry ."
- Guidance: Nothing explicit, sounds like there is not a rush from here to further reduce second half estimates.
- Nutshell: Pretty good quarter all things considered. The recent contract awards mentioned above have been partially released in recent weeks but should buoy analyst confidence. Net debt to cap remains low at 15% so no worries there and the company has cash on hand to pick off weaker players to add to augment its product mix. International operations, not surprisingly are holding up well and the companies cost cutting efforts there have kept margins up on that side of the business which should be well received.
- Conference Call: 9 am EST.
WFT Bricks The Quarter
- The 2Q Numbers:
- Revenue of $1.995 B vs $2.035 B expected
- down 11% YoY - not bad in light of the 35% drop in global rig count YoY.
- International revenue was actually up 9% YoY vs a 17% drop in international rig count - can you say low ball bidding?
- down 11% YoY - not bad in light of the 35% drop in global rig count YoY.
- EPS of $0.10 (ex items) vs $0.16 expected.
- EPS off 77% YoY
- cites record low seasonal activity in Canada
- cites greater than expected pricing declines in U.S.
- cites continued weakness in the U.S. drilling market for sequential drop in earnings from $0.27 reported for 1Q09.
- In North America WFT says "aggressive cost cutting measures and apparent share gains only partially offset the impact of price deterioration and lower activity levels."
- International Operations benefited on the revenue line from strong performances in a number of countries but weak pricing ruled the day resulting in lower sequential operating income.
- cites record low seasonal activity in Canada
- EPS off 77% YoY
- Revenue of $1.995 B vs $2.035 B expected
- Guidance: None.
- Nutshell: Despite relative bright spots in a number middle eastern countries and Mexico pricing and activity levels remain weak on a global basis and not to put too fine a point on it, the company bricked estimates. Look for more color on the call as the press release is as usual light on forward looking thoughts.
- Conference Call: 10:30 am EST.
Odds & Ends
Analyst Watch:
- (BJS) cut to Underperform at Wells Fargo - note that the company which gets most of its revenues from pressure pumper (fracing) reports tomorrow.
- (BTU) raised to Outperform at FBR - BTU reports tomorrow as well.
- (FTI) raised to Neutral at JPM.
- (CAM) raised to Outperform at JPM
Interesting Article Watch:
Analyst Watch Addendum:
Stifel starts CRK, PXD, SD, NFX at Buy.
HAL bidding up nicely pre conference call.
July 20th, 2009 at 7:34 amStifel starts CLR and SU with Hold ratings.
July 20th, 2009 at 7:36 amStifel starts SWN and UPL with Hold ratings.
July 20th, 2009 at 7:39 amA Baptist preacher from Alberta had a teenage son, and it was getting time the boy should give some thought to choosing a profession. Like many young men, the boy didn’t really know what he wanted to do, and he didn’t seem too concerned about it. One day, while the boy was away at school, his father decided to try an experiment. He went into the boy’s room and placed five objects on his desk:
– a Bible,
– a silver dollar,
– a bottle of whiskey,
– a marijuana cigarette,
– a Hustler magazine
‘I’ll just hide behind the door,’ the preacher said to himself, ‘and when he comes home from school this afternoon, I’ll see which object he picks up.
– If it’s the Bible, he’s going to be a preacher like me, and what a blessing that would be!
– If he picks up the dollar, he’s going to be a businessman, and that would be OK.
– But if picks up the bottle, he’s going to be a no-good drunkard, and, Lord, what a shame that would be.
– If he picks up the marijuana cigarette, he’s going to be a worthless dope-head,
– And worst of all, if he picks up that Hustler magazine, he’s going to be a skirt-chasing bum.’
The preacher waited anxiously, and soon heard his son’s footsteps as he entered the house whistling and headed for his room. The boy tossed his books on the bed, and as he turned to leave the room he spotted the objects on the table. With curiosity in his eye, he walked over to inspect them. Finally, he picked up the Bible and placed it under his arm. He picked up the silver dollar and dropped it into his pocket, put the joint to his lips, and lit it up. Taking a long drag from the doobie, he uncorked the whiskey bottle and took a big swig, while admiring the Hustler centerfold.
‘Lord have mercy!,’ the old preacher whispered in disgust, ‘he’s going to work in the oilfield!’
July 20th, 2009 at 7:47 amFunny one Wyoming, thought for sure it would end in option trader.
By the WFT bricked the quarter bad, the product of all those low ball bids to stay busy. HAL is going to pop on the other hand.
July 20th, 2009 at 7:50 amDoes it look like HAL will be the example where other service beats lowered estimates?
July 20th, 2009 at 7:54 amHAL call in five minutes.
July 20th, 2009 at 7:54 amI think the perception will be big cap will beat at least. I see people saying buy WFT on weakness this am and I think that is a mistake (at least I won’t be) prior to their call. I will listen to HAL CC in a minute and be back with more, think SLB maybe a play here as they don’t report until Friday and may get in now for a run and then punt Thursday.
July 20th, 2009 at 7:56 am#1 searched term on the HAL website:
CCS – carbon capture and storage
http://www.halliburton.com/ps/default.aspx?pageid=2768&navid=1333&SRC=MP
Call just started
July 20th, 2009 at 8:05 amHAL CC Notes 1
Plan: Stay within cashflow even while investing in infrastructure.
International business: think decline will not be as bad as in past cycles. Feeling better about international markets now than they did at the end of Q1.
See growth from Russia, Brazil, China in 2H09. Running through the new contracts layed out in the pr now.
July 20th, 2009 at 8:08 amThat international comment should boost SLB
July 20th, 2009 at 8:09 amHAL CC #2
Says deepwater market continue to be resilient, sees 60% win rate as evidence strategy is working well. Strength of DW comment likely positive for RIG, DO, NE, PDE, and ATW.
July 20th, 2009 at 8:10 amHAL CC Notes #3
Sees it as unlikely N. American drilling recovers much this year.
Took share in U.S.
Over 40% of rigs in the U.S. are operating in unconventional (largely shales) plays.
See some margin compression in the 3Q but it will come from lower activity and not from continued pricing pressure. Big sigh of relief there.
July 20th, 2009 at 8:12 amHAL CC Notes #4
Investing now to accelerate growth when the cycle turns back up.
Managing through the downturn. Aggressively lower input costs, eliminating discretionary spending, staying within cash flow, protecting credit rating.
July 20th, 2009 at 8:14 amHAL CC Notes #5
N. American margin compression may continue in 3Q but it won’t be as much trouble as in 1H09.
International: could see a 300 to 500 bp margin decline could gradually occur in the second half. THAT’S NOT GREAT.
July 20th, 2009 at 8:17 amHAL CC Notes #6
Benefiting from horizontal drilling increase as percent of all rigs drilling. (duh, but I have to point it out). 43% of U.S. rigs now drilling horizontal, that’s a record.
Financials
$1.2 billion unused borrowing cap
$3.1 b in cash and equiv
Outlined some pretty strong cost cutting efforts. This may mute some of the worry over that margin comment in 15 but the pre market bid for the stock has backed down since they said that.
July 20th, 2009 at 8:26 amHAL Q&A Starting
First question of course is the 300 to 500 basis point decline on the international side.
This comes from pricing pressure, not activity levels. Hmmm.
July 20th, 2009 at 8:30 amDealing with some issues this a.m. …. But wanted to point out that we are seeing a very strong credit mrkt rally on the back of bank earnings and CIT private mrkt solution. Note: CIT would not have found a private mrkt solution unless money was flowing back into credit. It’s not “all good, all clear, all up from here”…. but, we are definitely doing much much MUCH better, in Credit Land.
Pick your stocks, pick your entry prices, execute your plan.
IG 126 1/2
HY 86 (!!)
July 20th, 2009 at 8:32 amHAL is adding that if oil prices firm up they would not expect as much downward pressure in the next 6 quarters. So the 300 to 500 Bps (from the 20% margin level) is kind of their “as things stand now” level.
Watch HAL closely for an exit of half my position, quite a bit of worry here about int’l margins, not yet hitting the stock at all but I want to be prudent.
July 20th, 2009 at 8:37 amZTRADE:
HAL – Half out of my August $22 Calls for $1.21, up 177% since entry last week. Time to play the remainder with house money as I am a little concerned about the international margin forecast degradation given on the call.
July 20th, 2009 at 8:39 amHAL commenting on the toughness on equipment of the shale plays. Says this will accelerate the retirement of horsepower out of the N. American market. Basically saying that as stuff breaks for the little guys it won’t be replaced due to current weak pricing, this leads to increased share for the likes of HAL and the other big, cash rish, financially stable players.
July 20th, 2009 at 8:42 amThanks BOP for stopping in.
Further HAL comments on shales being tough on equipment.
Capacity road map: clearly there is excess capacity now. HAL says when working in shale plays they need 10 to 15% more equipment to maintain their required level of up time. Weigh in here with a comment Wyoming or TEXW.
July 20th, 2009 at 8:44 amGiven the International comments out of HAL which I notice they left out entirely from the press release, I am not going to be grabbing some SLB just yet as I mused about earlier.
July 20th, 2009 at 8:45 ambop
July 20th, 2009 at 8:50 am== u never told us what tt or ht (i forget which) traded fri.
Credit still moving up here. Good to see.
No color from TechTrader this morning… but after Friday’s close, he predicts that tomorrow will be a down day. 88% of the time, following option expiry Fridays, best trade is short (since 2000).
So, flying blind today… but, nice profit-taking on those HAL’s, z.
July 20th, 2009 at 8:50 amkyleandy — we (HT) went long the FAS. Made a bit of $$… but didn’t hold over the weekend. So, just funny b/c z was saying he would avoid the financials, just about the same time we put on a day-trade in FAS. But, couldn’t disagree with z’s position, that is why we didn’t hold over the w/e.
good memory, kyleandy.
July 20th, 2009 at 8:53 amBTU just flying, not going to play this quarter unless post call.
BOP – like I have a clue on the financials, lol. I always avoid them because I honestly don’t understand them.
July 20th, 2009 at 8:58 amJune Leading Indicators up a bit more than exp’d … 0.7% vs 0.5% expd
July 20th, 2009 at 9:00 amz — fwiw, normally we wouldn’t trade in the financials either. Too black-boxy. But, there are a number of global-macro reasons why the banks made money in 2Q and will continue to make money in 2H09, even with the commercial and consumer load write-downs and write-offs. If you can hit an investment thesis with a sledgehammer… and it still stands, that is the stuff we like to play. Just our 2 cents… and worth only 1/2 that!
July 20th, 2009 at 9:06 amBTW, if TechTrader thinks Tuesday will be a down-day, might be worth planning what to do tomorrow… if an oppy presents itself.
July 20th, 2009 at 9:08 amZ, re 8 and WFT, never underestimate the power of Bernard’s kool-aid. The man is a snake-charmer.
July 20th, 2009 at 9:19 amWatching EOG run up and away from me. Ah well, will try to catch it on a red day.
Re TT thoughts, I’d like a shot a lower price NFX, CLR, RRC, and HK.
July 20th, 2009 at 9:20 amJat hear ya there, plan to listen to the CC in 10 minutes.
NFX should have an extensive operations update out with the 2Q press release (probably Wednesday night). I would not expect to see anything new on deepwater but there are very likely to be some noteworthy Bakken completions, Woodford news (maybe an EUR upgrade), and maybe something new to talk about. I’m up on my calls and will likely add another set before Wednesday.
July 20th, 2009 at 9:23 amGood interview with Art Smith, the former CEO of JS Herold, now runs his own consultancy.
http://news.goldseek.com/GoldSeek/1247810700.php
July 20th, 2009 at 9:25 amRe #22:
We are seeing 3-4 pumps go down every stage we frac in the Haynesville. We are doing 10-12 stages per well. Granted, these are not catastrophic pump losses, but the we have lost over 9 pumps on one well, permanent losses. So yes, pumps out in the shale plays will have a very limited life.
July 20th, 2009 at 9:26 amTEX – how about bits and rigs themselves drilling through the shale, any higher use rate there? Seem to be able to drill them pretty fast so I’m guessing its just the pumping side but wanted to know your thoughts.
BOP – smart guy that one.
July 20th, 2009 at 9:29 amZTRADE:
HK – Sold the HK $22 August Calls (HKHS) for $2.15 with the stock at 23.10. Stock feels a bit tired today and if I can scoop these back significantly lower before the end of the day I will as I continue to anticipate an operations update here. I continue to hold the $24 August calls as well and may sell and reposition them as well in short order.
July 20th, 2009 at 9:34 amCredit Market giving up a little of this morning’s gains. Some profit-taking, it looks like.
IG 127 (after rallying to 125)
July 20th, 2009 at 9:37 amWFT speaker sounds like someone killed his dog.
July 20th, 2009 at 9:39 amtater or Nicky – If either of you are around, do you think that now that gold is back at 950 that I’ll have another run to crack 1014?
I know one of you said that you expect failure at 965 ish.
July 20th, 2009 at 9:39 amRe #36:
No difference in terms of drilling services (rigs, bits, etc). Mainly pumping services is where you are seeing the wear and tear.
July 20th, 2009 at 9:39 amThanks much TEXW. Seen any monster flares lately?
July 20th, 2009 at 9:42 amOil almost flat now, off over a buck from earlier highs,
NG down 14 cents, blame mild weather in the U.S. and the tropics, and the big run last week.
WFT saying N. American – pricing moves look to be behind us. Says same for International markets which runs a bit counter to International.
July 20th, 2009 at 9:47 amGetting the desired weakness in RRC, CLR, NFX in #32. Careful what you wish for.
July 20th, 2009 at 9:50 amService almost entirely red now, OIH down 1.5%. HAL about to go red. I may buy back my calls sold earlier.
July 20th, 2009 at 9:51 amNo doubt about frac pump wear and tear. The individual components may be catastrophic, lose an engine or power frame. They are all replaceable and relatively easy fixes (probably way cheaper too). In todays market, a fluid end is one call away, probably have a couple laying on the ground because any manager worth his salt will have one prepped and green tagged.
Summary: I don’t buy that excuse that they need to keep building pumps. They can manage with their existing equipment for about 7-10 years replacing the worn equipment.
July 20th, 2009 at 9:57 amZTRADE:
Added (15) HAL $22 August Calls for $0.79 with the stock at 21.65 having round tripped the day’s gains after the call and with a tepid market. These are the same ones I sold earlier in the day at $1.21.
July 20th, 2009 at 9:59 amOle throwing a lifeline Q&A, CEO saying NAM margins would have been more mid single digits without Canada…
July 20th, 2009 at 10:02 amJat – right, imagine the results without Canada. Not because Canada is going to get better sometime soon but because in a perfect world, it would not be so bad.
July 20th, 2009 at 10:04 amZ is smart, Z is wise:
http://blogs.chron.com/newswatchenergy/archives/2009/07/us_lng_surge_ma_1.html
July 20th, 2009 at 10:04 amThanks Wyoming. It seems to always be just around the corner. Personally I think China is the great vacuum out there as volumes have been diverted away from the U.S. and must be going someplace. I know there is not a flotilla of LNG ships at sea, waiting on higher U.S. prices to come ashore.
July 20th, 2009 at 10:06 amLOL. Sell-siders should get medals from the company for this one, stepping in with the defibrillators. Kool-aid that was hemlock now turning back to something resembling the product left by dogs on fire hydrants.
July 20th, 2009 at 10:11 amJat – got to love Pickering pinning WFT down. I don’t see touching them yet.
July 20th, 2009 at 10:20 amJust listening to WFT for color on N. American and international markets, nothing earth shattering going on.
July 20th, 2009 at 10:35 amStocks drifting with the market now, HAL is the outlier outperformer in the group but only slightly. WFT is the outlier underperformer, stuck down 9%.
Eying for NFX and RRC for adds here. Will add some higher strike HK back before the close, adding probably to the $24s I already hold but may go higher.
July 20th, 2009 at 10:54 amA lotta off topic but I found it interesting. One guys quick breakdown of the HC Bill, start from about the mid above the comments and work your way to the top to start from the beginning pages.
http://blog.flecksoflife.com/2009/07/19/the-first-400-pages-of-the-hc-monstrosity/?success&dsq=12932784#comment-12932784
July 20th, 2009 at 10:59 amEOG just won’t back off, amazing outperformance over the last couple of weeks.
July 20th, 2009 at 11:15 amMulling BJS puts for earnings tomorrow. Obviously they are going to have a tough quarter, estimate is for EPS of a penny. Not sure they will do bad enough for a short (puts) but think I will take a small position. Street has been abandoning ship on ratings here last few weeks and I don’t see much from the HAL and WFT calls to indicate that things are getting better for them although they may be able to say pricing is at least flattening even if activity isn’t.
July 20th, 2009 at 11:27 amZTRADE:
NFX – Added (5) more NFX August $35 calls (NFXHG) for 2.15 with the stock at 35.10. This brings me to 15 of these with an average cost of $1.72. Earnings should be out Wednesday night with the CC on Thursday.
July 20th, 2009 at 11:29 amRe 56 – want to fix healthcare? New Fed taxes: $10 per pack of smokes, $1 for fries, chips or a cheeseburger.
July 20th, 2009 at 11:34 amWyoming and TEXW? Can I get your ballparks for how much pumping pricing is off in the last couple of months? Is it stabilizing or still pulling back as you see it? Awful lot talk suggests various service costs are stabilizing as the rig count slide slows.
July 20th, 2009 at 11:37 amNo! anything but the fries and burgers. Smokes, condoms, bubble gum …
Pumping prices since last year roughly down about 60%, may have come up some due to the drastic slashes in crews. HAL, not down in price so much. Also, your question is dependent upon market and not easy to generalize. The HS is probably being charged more than the Barnett, depends on crews, which vendors are active etc.
July 20th, 2009 at 11:42 amWyoming – hear ya dangerous to generalize. Was reading that bundling guys like HAL might have it a bit better than guys like BJS. Mulling a put there, still reading back over old transcripts to make sure I’ve got down what they’ve been spinning, last few calls.
July 20th, 2009 at 11:45 amhttp://www.bloomberg.com/apps/news?pid=20601087&sid=aQEI97EY.fs0
23.7 trillion?
Can’t wait to see the rest of that story.
July 20th, 2009 at 12:13 pmBOP – Has any info been released on the terms of the 3 billion for CIT?
July 20th, 2009 at 12:16 pmre 64. Um. Wow. I think it’s safe to say that’s bigger than anyone was thinking. Dollar on the brink of a breakdown.
July 20th, 2009 at 12:17 pmVTZ — good question! No. Not that I can see. Mrkt waiting for concrete news. It ain’t over, til it’s over.
July 20th, 2009 at 12:17 pmDoes this trouble any one else? It just seems like states should be pushing for things like creating a pro-business and pro-growth environment… not pushing even MORE risky behavior in the direction of consumers. This just seems wrong, on so many levels. Oh well…
http://www.bloomberg.com/apps/news?pid=20601110&sid=awctSPq3YdAc
July 20th, 2009 at 12:22 pmHi to all.
BOP for absolutely sure tech trader is right and tomorrow will be a down day.
iii may still be underway but if so we are in iv of 3 with one more shot to the upside to come in v. I am still looking at 950 – 52 for v. Then we see a IV pullback with a further V up. IV could come back to the 905 – 922 level on the SPX and then a final high at maybe 971, possibly 1000 but I wouldn’t bet on it.
$ confirming all this as now in v down. Final target of possibly 77.90 area.
Oil as we are rolling to the September contract we may see 67.00.
July 20th, 2009 at 12:27 pmBOP – It doesn’t surprise me… Seems like something the government would dream up.
July 20th, 2009 at 12:28 pmAfternoon Nicky, thanks for the levels. Good point on expiration of front month crude being tomorrow, could get a little hinky then but the Septembers are above $65 now.
Bigger put activity in the BJS now, I think I will join them.
July 20th, 2009 at 12:33 pmZTRADE:
BJS – Added (10) August $12.50 PUTS (BJSTV) for $0.40 with earnings out tomorrow. Expectations are low and put activity is high. Small position for me being taken after listening to the HAL and WFT calls. Perhaps all the bad news is already factored in but I can’t imagine that management has any kind of visibility on the 2H09 or 2010 at this point as to a recovery.
July 20th, 2009 at 12:40 pmSmug, arrogant Joe Terranova on CNBC has been hurling insults at Roubini for days now. Today pointed at the camera and pretty much said you are wrong and I am right. Pathetic.
July 20th, 2009 at 12:43 pmWhat’s Terranova upset about? I’ve got Spongebob on which I find to more educational than CNBC.
July 20th, 2009 at 12:45 pmBundling – small guys sometimes band together. IE you may find FracTECH will bundle with JW Wireline. BJS could easily bundle with any mom and pop or their old brothers at BHI. KEG, HAL, WFT are all packages.
July 20th, 2009 at 12:50 pmOk, hear ya Wyoming, thanks.
July 20th, 2009 at 12:54 pmwatch bloomberg…they will make you nappy
July 20th, 2009 at 1:02 pmHere’s what I found on CIT:
NEW YORK (Reuters) – CIT Group Inc has clinched $3 billion of emergency financing from bondholders, keeping the struggling lender out of bankruptcy, a person close to the matter said.
The rescue from several big bondholders including Pacific Investment Management Co has been approved by CIT’s board and could be announced on Monday, the source said.
A rescue could allow more time for the 101-year-old lender to small and mid-sized businesses to restructure its debt, and preserve the ability of thousands of businesses to obtain cash needed for day-to-day operations.
Yet several analysts and bankers said it might only delay a bankruptcy filing, in light of skittishness among CIT customers and the New York-based company’s inability to readily tap capital markets.
“The deal is a negative for bondholders as it does not fix the underlying problem and layers in more secured debt,” wrote CreditSights Inc analysts Adam Steer and David Hendler. “Without a viable funding model, we believe CIT may still be at risk of filing for bankruptcy.”
CIT spokesman Curt Ritter declined to comment after initial reports of the rescue. He was not available on Monday.
In afternoon trading, CIT shares were up 58 cents, or 82.9 percent, at $1.28 on the New York Stock Exchange.
HIGH BORROWING COSTS
According to published reports, CIT would pay interest on the financing of 10 percentage points more than the three-month London Interbank Offered Rate. This equates to an annual rate of about 10.5 percent.
The bondholder group includes Pimco, a unit of German insurer Allianz SE, and other large investors, and is expected to provide financing with a 2-1/2-year term, two people familiar with the matter said.
This financing would be backed by unsecuritized CIT assets, which probably exceed $10 billion, one of the sources said. The sources requested anonymity because the talks are private.
A rescue would help CIT address a looming $1 billion bond payment due next month. Yet it would not necessarily restore longer-term confidence in the company, following a liquidity squeeze exacerbated by customers who drew down credit lines.
CIT had sought emergency federal funding before talks broke down last week. The Obama administration appeared to draw a line as to how readily it would bail out troubled companies, following several big corporate bailouts over the last year.
Retail industry groups had last week urged U.S. Treasury Secretary Timothy Geithner to act to ensure CIT’s survival.
The bondholder rescue could, however, preserve the government’s $2.33 billion investment in CIT from the Troubled Asset Relief Program. CIT became eligible for such financing when it became a bank holding company in December.
A rescue “comes as a great relief” for retailers preparing for the back-to-school and holiday shopping seasons, said Tracy Mullin, chief executive of the National Retail Federation.
“CIT could not be allowed to fail at a time when retailers are already struggling to survive,” she said in a statement.
CEO SURPRISED
Problems at CIT mushroomed two years ago in the wake of Chief Executive Jeffrey Peek’s decision earlier in the decade to expand into subprime mortgages and student loans.
Last week’s government decision not to provide aid surprised Peek, leading him to seek help from private investors, one of the people familiar with the matter said.
A bankruptcy would make CIT, with $75.7 billion of reported assets, the largest U.S. financial company to go bankrupt since Lehman Brothers Holdings Inc last September.
CIT has about $40 billion of long-term debt, CreditSights said. It has lost close to $3.3 billion since the end of 2007.
On Monday, it cost $4.3 million upfront plus $500,000 annually to insure $10 million of CIT debt against default for five years, down from $4.45 million upfront on Friday, according to Phoenix Partners Group.
CIT debt maturing in three to five years yielded in the mid-20s to mid-30s, according to bond pricing service Trace.
The company has been scheduled to report second-quarter results on July 23. It was unclear how the bailout talks might affect the timing of that report.
(Reporting by Jennifer Ablan, Paritosh Bansal, Michael Erman, John Parry, Ransdell Pierson and Jonathan Stempel; Editing by Gerald E. McCormick and John Wallace)
July 20th, 2009 at 1:08 pmTerranova said on Friday that Roubini made a lousy call in March (I never heard that as I think he is more long term anyway) and is now trying to get out of his shorts by talking the market down when Terranova is super bullish on the market. So at every opportunity Terranoval is yelling at the camera that Roubini is wrong.
July 20th, 2009 at 1:15 pmJivey, I keep then on a screen, good stuff, very dry at times, but good stuff.
July 20th, 2009 at 1:15 pmNicky – I find the whole crew less and less worthwhile as time goes by. Give me 2 of the morning guys (Kernon and Faber), Melissa Francis, and maybe Caruso Carbrera and I’d start a new network.
July 20th, 2009 at 1:17 pmon the cnbc talking heads… you all may have seen this already.. but I found it funny as hell..
http://market-ticker.denninger.net/archives/1175-To-Dennis-Kneale-Youre-An-Idiot.html
July 20th, 2009 at 1:28 pmI saw that before Gary but it is still true.
July 20th, 2009 at 1:35 pmCramer was just pretty positive on HAL, citing international and cost cutting. Kind of an oversimplification as you could say that WFT has international ops and has been cutting costs as well and is off 9% today but I digress. I would bet Jim pumps SLB on his show to his followers.
July 20th, 2009 at 1:41 pmNicky – is the argument for a big bad down day tomorrow entirely fundamental. I would note that we have a rare Tuesday without economic data and the market, without eco data to seize on has more often than not fallen and hard on those days of late.
July 20th, 2009 at 1:43 pmYou would think this would be the final straw for the market:
“Barofsky said that while the TARP program that Congress passed amounts to $700 billion, the total federal government support since 2007 for the economy and the financial sector could reach a far higher figure of $23.7 trillion.” and “Meanwhile, Barofsky’s office has opened 35 criminal and civil investigations into issues including suspected accounting fraud, securities fraud, insider trading, mortgage servicer misconduct, mortgage fraud, public corruption, false statements and taxes.”
July 20th, 2009 at 1:44 pmAlso Nicky, are you thinking $67 or so as the near term high for the September contract.
July 20th, 2009 at 1:48 pmwell i am trying to ignore the fundamentals Z – although I don’t see them through the same rose colored glasses that are being touted anyway. As I said last week what is so good about better earnings on cost cutting? We need jobs otherwise this is going nowhere. But technically we are very overbought and pattern to the upside nearly complete and calls for at least a pullback.
July 20th, 2009 at 1:49 pmThanks Nicky, that’s what I thought, agreed re very much in the “too far, too fast” camp.
July 20th, 2009 at 1:50 pmZ – my thinking on oil is that we are in a wave ii correction and that wave i down ended at the 58 level. We actually could get back to 71.95 and it look fine for wave ii. If I am wrong about the bigger picture and a top is not in then the low we saw at 58 was a wave iv and we are going to make a higher high for v before turning down.
July 20th, 2009 at 1:53 pmA ton of earnings this week too – they better not disappoint. Bernanke tomorrow and Wednesday and the market is looking for his exit strategy. Has he got one??? And then of course the solar eclipse tomorrow….
July 20th, 2009 at 1:56 pmOk, Melissa Francis is off my network. She just was speaking on media and said Blogging is not news. That you don’t know if its true or not. This implies everything on CNBC is true? Whatever dudet.
July 20th, 2009 at 1:57 pmZ – I was a little unsure about Melissa when you mentioned her. I remember her ramping oil for all it was worth two years ago and denying speculation. Now she is continually saying how the market is being run by speculators. So she is a flip flop.
July 20th, 2009 at 2:02 pmKeep Santelli on the team.
July 20th, 2009 at 2:02 pmHear ya Santelli to replace Francis. I liked Francis because she was much better on the fundamentals of oil than her replacement but that’s not saying much. End of rant. I just get ticked when these overpaid, teleprompter readers have the audacity to claim they are the mother loving “source”. Ok seriously, end of rant.
July 20th, 2009 at 2:05 pmNote the reversal in NG this afternoon. Smells like a short cover from the down 15 cent open to green at close on ok but not great weather. I think HAL’s statement about no recovery in the number of U.S. natural gas rigs turning to the right is hitting home with shorts.
July 20th, 2009 at 2:10 pmIf SPX gets through 952 then 963.
July 20th, 2009 at 2:16 pmRoubini on CNBC at 4.15 this afternoon.
July 20th, 2009 at 2:16 pmAs I understand, PG&E to issue OFO in Northern Cal tomorrow. Marketing thinks it will be painful until October time. Thinks this will start to effect W. Texas shortly, then impact Northern US Markets with flood of available gas looking for a home. Pipelines appear to be high pressured as there are fewer places to store current production.
July 20th, 2009 at 2:18 pmWyoming – makes sense, I don’t see a run away here, just some more volatility, big spikes on short covering followed by re entries of the shorts until we see the numbers come down on production. The Producing region and Western region are nearing record levels (they’re at them for this time of year easily but going for the end of season injection 2 months early).
July 20th, 2009 at 2:24 pmAnd the spikes should be used by the lightly hedged to hedge 1Q10 production in my opinion.
July 20th, 2009 at 2:25 pmFYI, I’m in the process of punting the HAL $22 call position at $1.10, not quite done yet. Results were good but the profits on the reload here were too large, quick to pass on. Apologies for the day trade.
July 20th, 2009 at 2:33 pmZTRADE:
Out of the 15 HAL Calls taken earlier and the previously held 5 for $1.10 for a combined 55% gain. I’ll revisit when things settle but I was not overly enthusiastic about the 300 to 500 bps decline in international margins disclosed as a reality case on the conference call.
July 20th, 2009 at 2:36 pmZTRADE:
Added (10) HK $24 August Calls (HKHO) for $1.20, upping the leverage a bit in the name after taking profits in the $22 strikes sold earlier. I continue to anticipate an operational update here.
July 20th, 2009 at 2:47 pmOk, that was the last trade of the day for me, busy for a Monday but I prefer news to quiet, listless summer trading any day.
July 20th, 2009 at 2:49 pmImports Watch: 8.8 Bcfgpd, up 0.7 Bcfgpd from the prior week. Down 0.5 Bcfgpd from year ago levels.
Canada: 7.5 Bcfgpd (from 7.0 Bcfgpd last week and 8.2 Bcfgpd this week last year.
LNG: 1.4 Bcfgpd vs 1.1 last week and last year.
July 20th, 2009 at 2:55 pmBeerthirty
July 20th, 2009 at 3:00 pmBarnie Frank
http://finance.yahoo.com/tech-ticker/article/285683/Frank-I%27m-Not-to-Blame-for-Housing-Bubble?tickers=len,fnm,fre,kbh,tol,xhb,hd&sec=topStories&pos=9&asset=&ccode=
July 20th, 2009 at 3:36 pmEveryone is beating the low balls:
http://www.marketwatch.com/story/texas-instruments-reports-lower-quarterly-profit
July 20th, 2009 at 3:49 pmHouse Passes HR 1622. Nat gas for vehicles.
July 20th, 2009 at 5:58 pm95 – Z – talking about CNBC talking heads, Obama, or both ? LOL.
July 20th, 2009 at 7:35 pmCalifornia reaches budget deal:
http://www.marketwatch.com/story/california-reaches-budget-deal-reports-2009720222300
July 20th, 2009 at 9:44 pmhttp://golehr.com/
July 20th, 2009 at 9:45 pmMaybe help prevent OFO in So Cal:
http://www.reuters.com/article/environmentNews/idUSTRE56J50H20090720?feedType=RSS&feedName=environmentNews&rpc=22&sp=true
July 20th, 2009 at 10:06 pmbest skin care products yahoo
…
January 14th, 2016 at 5:55 pm