“It’s immoral to let a sucker keep his money” - Hertz (to the bankruptcy judge), quoting Canada Bill Jones

Lending against Oil & Gas reserves works great… until one day you wake up in a bathtub of ice, w/ no kidneys, staring at an impaired DIP loan & a note that says: "Call an ambulance. Love, ____"

RBLs.

Huntington Bank & Texas Capital Bank are preemptively calling 9-1-1.

From the WSJ:

“Regional lenders Huntington & Texas Capital are actively marketing portfolios of such loans to hedge funds, private-equity firms”

If you’re planning to get out, now’s probably the time.

As we demonstrated w/ Ring & CDEV, the issues of well performance & hitting production forecasts are problems that won’t be solved by higher prices.

And hoping for higher prices is not a strategy.

Slide from a ‘11 EIG Presentation

There’s going to be market capacity issues - how many RBLs can the secondary market absorb in the next 12x months?

Loans to US energy companies total ~$650BN.

And even though a fraction of those loans are RBLs, the credit markets - absent liquidity from the bailouts - haven’t exactly shown a consistent capacity to absorb large volumes of niche, non-IG transactions.

So, we’d sell today.

Better than facing an ugly MtM later.

Otherwise, your best bet is waiting for a bailout -

IBO - INITIAL BANKRUPTCY OFFERING.

*Free Money*

A mantra of the 2020 bailouts is now the mantra of message board traders.

And Hertz - the rental car company - is testing the limits of this weird new world.

Yesterday, Hertz filed a prospectus to issue new shares, while in bankruptcy.

The risk factors in this offering are laughable:

“We are in the process of Ch. 11 reorganization cases under the Bankruptcy Code, which may cause our common stock to decrease in value, or may render our common stock worthless” - pg 2

We have no idea if this will work.

That said…

If the Robinhood retail mob buys into this, then we’re certain that Hertz’s creditors will have the last laugh -

OTHER NEWS.

The Fed announced further bond buying plans.

To be clear, this is not the ‘82 Francois Mitterrand nationalizations.

However, it will likely be a much, much larger exercise in moral hazard.

• Venezuela is down to 1x rig

• BP’s $17.5BN write-off

• SM exchange offering results

• Antero’s ORRI

• Extraction files for bankruptcy

That’s it for today - we’ll be back Friday - catch y’all then -