Turnaround Investing Blog

George Putnam, one of the country's leading turnaround and distressed investing professionals, shares his timely insight on the economy and turnaround investing opportunities.

Bankruptcy/Chapter 11 / Energy / Post-Bankruptcy Stocks

Energy's Wild Ride--Energy Sector Bankruptcies E-Report

New Generation Research's BankruptcyData has been monitoring U.S. Bankruptcy Court activity for 25 years now, and its most recent free e-report offers 40+ pages of detailed statistics and analysis of the ever-changing landscape in the battered energy sector.

BankruptcyData notes that the shale-driven resurgence of the U.S. energy industry hit a big obstacle in mid-2014 when oil prices began their precipitous decline. After years of relatively steady $100/barrel oil, the price dropped nearly 75% to a February 2016 low of $26/ barrel. In short order, oil and gas company revenues dropped by almost 50%.

As earnings and stock prices declined dramatically, the industry reacted by cutting capital expenditures, deferring projects and slashing expenses by reducing headcount and pushing suppliers for lower prices.  The sharp pull-back in drilling activity, combined with some discipline from OPEC, started affecting oil production and helped prices recover to the low $50s by mid-2016.

With the industry in its worst downturn in decades, energy companies dominated the bankruptcy landscape. Over 60% of the assets that filed for bankruptcy during 2014-2016 and nearly 50% of the total number of public company bankruptcies were from the energy industry (historically, the energy industry accounts for just 2-15% of public company bankruptcies). Also, these companies were often very large: 15 of the top 20 bankruptcies came from the energy industry.

Top 20 Bankruptcies – All Industries (2015-2016)

Company

Assets

Caesars Entertainment Operating Company, Inc.

$11,676,400,000

SunEdison, Inc.

11,499,800,000

Peabody Energy Corporation

11,021,300,000

Alpha Natural Resources, Inc.

10,736,148,000

LINN Energy, LLC

9,976,946,000

Doral Financial Corporation

8,493,454,000

Arch Coal, Inc.

8,429,723,000

Samson Resources Corporation

5,608,312,000

Walter Energy, Inc.

5,386,129,000

Breitburn Energy Partners LP

4,872,412,000

Energy XXI Ltd

4,690,829,000

Offshore Group Investment Limited

3,507,372,000

Republic Airways Holdings Inc.

3,494,000,000

Halcon Resources Corporation

3,458,692,000

Paragon Offshore plc

3,253,389,000

SandRidge Energy, Inc.

2,991,155,000

China Fishery Group Limited

2,652,800,000

Molycorp, Inc.

2,575,986,000

RCS Capital Corporation

2,466,628,000

Sabine Oil & Gas Corporation

2,438,350,000

Not only were energy bankruptcy filings among the largest Chapter 11 petitioners, this industry also dominated overall filing totals: Public company energy-related bankruptcies represented just over 50% and 40%, respectively, of 2015 and 2016's total public company bankruptcy counts. Detailed statistics and analysis are available in Energy Sector Bankruptcies.

BankruptcyData anticipates that overall bankruptcy activity will remain at a high level for the foreseeable future. Energy company filings have probably peaked and will gradually decline over the next 12 to 18 months. The flow of bankruptcies will likely shift toward a more diverse group of industries. The low interest rate environment since 2009 has led a wide range of companies to accumulate nearly $1.5 trillion of lower quality debt that will come due over the next five years.

Not all of that debt will be repaid or refinanced. If debt markets and the economy remain healthy, perhaps only a small percentage will require restructuring through Chapter 11. However, if debt markets become more selective or if the economy pressures cash flows, bankruptcy filings could increase significantly. In time, this would contribute to an opportunity-rich market for distressed debt and post-reorganization stocks.

Learn more: Download the free Energy Sector Bankruptcies e-report directly to your browser.

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Free Turnaround Letter Research Report: Bioverativ (NYSE: BIVV)

We're sharing this complimentary copy of our full Research Report for Bioverativ (NYSE: BIVV)—20+ pages of financial analysis, investment philosophy and straightforward explanation. BIVV, our most recent closed out purchase recommendation, brought Turnaround Letter readers 95% stock profit in seven short months. Read More.

Harnessing Activists to Help Find Turnaround Stocks

Activist investors often produce attractive returns for their clients; and you can still use their influence to help your position as a turnaround investor in two ways: Buy a position in a stock with the expectation that an activist will soon follow or buy after an activist takes a stake.

 

Value Investing

 

While one of the many dozens of activist funds might find their way to selecting your particular stock, this approach is likely to be frustrating and unrewarding. A better approach is to buy after the activist makes their move. Once an activist takes a stake in a company, how do you evaluate whether it is worthwhile to follow on? Admittedly, this is a bit of an art... Learn how you can harness the power of activist investors to find market-beating turnaround stocks.

Turnaround Letter Stock Pick Named Top Performer of 2017

 

stock market advicex

 

What Last Year's Top Stock Pickers Are Buying in 2018

 

This Forbes write-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.

 

George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."