Hey
@Rob79,
Drive safely. You know I enjoy discussing/articulating the finer points with you. This isn't nit picking, it gets to the core differences and also interpretation of the same data. I guess my view is overwhelming coming out of North American point of view and not of an Australian/ASX point of view.
With that perspective I don't at all agree with the "little activity" in M&A this time last year. From a company perspective yes from a property perspective (which is what I think you meant) absolutely no. Plenty of wheeling and dealing in properties over the past 12 months. What did not occur was the fire sales which have now accelerated somewhat but then NS was no fire sale.
NPV10 cannot be overstated. The formula is strict and not open to manipulation. Again what I think you meant was that the SEC PV10 value comes in high because of the backward looking nature of the formula. I think I beat that drum constantly because that is the input at best into Banks BB determinations and with the oil price slide, banks became much more forward looking to a NYMEX strip priced deck. So the outcome is always read the fine print about what the valuation entails. My early posts which were considered downramping about SSN's asset values are a case in point. Reality wins in the end.
"Tough love". OK that is certainly valid. I don't know how well understood the whole RBL BB process is. Banks do have regulators - or examiners as they are called - and the OCC is responsible for this. They actually have categories called "Pass", "Special Mention", "Substandard", "Doubtful" and "Loss" (sorry nothing under the heading of tough love) under which the Bank has to classify its loan. While their is subjectivity here as it is loan by loan, there are also objective measurements applied.
For example,
"Special Mention" has an annotations of:
"Borrower is approaching covenant limits or has experienced recent covenant waivers or resets";
"Liquidity and cash flow are diminished and marginally sufficient to fund operations and meet the borrower’s projected operating and capital plan. The borrower has a history of over-advances and demonstrates marginal capacity to cure such over-advances."
whereas
"Substandard" has annotations of
"Borrower breached covenant limits or needs covenant waivers.";
"Liquidity and cash flow are insufficient to fund operations and meet projected capex. The company may need to sell assets or operations due to weak or distressed financial condition. The borrower has a history of over-advances and cannot cure existing over-advances within six months.
There are also quite specific tests with respect to economic life of reserves and bank projections of future cash flows.
Looking through that lens, I would have thought SSN's loan was fairly squarely in the Substandard classification WITHOUT the FB acquisition. With the adjustments to covenants AND the required paydown of BB and Equity injection I think the loan gets back to Special Mention and likely to get back to "Pass" category upon completion of Equity raising and improving oil price.
Clearly though I am harder their banking relationship than your view. Probably just meany me.
And agreed - we'll never know on the sit it out strategy - but there are a few train wrecks that tried to ride it out.
Take care.
