Well, we had a bit of excitement at Excelsior Capital Partners earlier this week.
Monday night Tellurian (TELL) announced that it was pulling its Senior Notes offering that were first announced on August 29th. That sent the prices of Tellurian's retail notes, (TELZ) , which I had recommended in my Real Money column of August 26th, crashing all the way down to $16.87 in Tuesday morning trading, which is 67 cents on the dollar - based on par value of $25 per share - and an effective yield of 12.2%.
That was too good to pass up, so I marshaled ExCap's free resources and mobilized the members of my old co-conspirators, the Portfolio Guru Army, and we bought as much as we could.
Fast forward to today, and TELZ is back to trading at 80 cents on the dollar. Partial victory, and it feels good. But it was really TELL's visionary founder, Charif Souki, that stopped the bleeding in TELL common stock as well as the TELZ notes, with this YouTube video.
Financing markets are seizing up, and according to BoFA this morning, massive outflows are occurring from bond funds as the global government bond market endures its worst year since 1949. So, Charif could either pay extraordinary interest - the notes were filed at 11.25% and, as of last week, the price talk was 12.5% - plus suffer the encumbrance of the company's productive assets, natural gas wells in the Haynesville Shale, which will eventually feed the LNG export plant that Tellurian is constructing in Calcasieu Pass, LA, or seek alternative financing sources.
Tellurian's proposed bond offering was injurious to TELZ holders in the capital structure and would have been - with that ridiculously-rich coupon - dilutive to the cash flows that we depend on for our quarterly TELZ payments. Good riddance to a bad deal.
Charif is throwing out signals that Driftwood is in play for any strategic buyers. Tellingly, he noted in his YouTube video that those discussions had been ongoing for the past 6-9 months. When the bond market plotzes, companies have to be open to new financing solutions. Charif's deep experience in LNG (he essentially created Cheniere (LNG) before a messy divorce in 2015) gives him an extraordinary Rolodex.
As Powell and his band of clowns at the FOMC kneecap the U.S economy, the economics of an LNG export facility (of which Phase I output is already pre-sold to established industry giants Shell (SHEL) , Gunvor and Vitol) are still quite strong.
The numbers don't lie. According to oilprice.com, Henry Hub futures are quoted at $6.86/mmBTU - natgas futures are having a tough week, like seemingly every other financial asset. According to the CME, the Asian benchmark for LNG, JKM, is seeing front-month futures quoted at $39.91/mmBTU and, according to ICE, front-month futures for the European gas benchmark (TTF) are quoted at a mere $184.5/mmBTU, with November futures trading above $200/mmBTU.
Let me detail that for you. Asian LNG is trading at 5.8x what that gas feedstock sells for in the US. The ratio in Europe is at an astounding, although it was higher in August, 27 times what it costs in the US. That's decades of relying on the incredibly unreliable Vlad Putin and the demonization of hydrocarbons by ESG-crazed Euro technocrats come to life.
If you understand arbitrage, you have to know that buying something, shipping it, including the liquefaction and regasification process, and then selling it for a 2600% profit margin is probably a decent business. It is. So, we will ride with Tellurian. TELZ is a small (about $55 million outstanding) offering geared toward retail investors. Sometimes we little guys flex our muscles. Power to the people!
I am not claiming that the $25 billion total project cost of Driftwood (Phase I will cost $12.8 billion; revenues from Phase I should fund Phase II) is saved by our intervention in a thinly-traded Tellurian senior note. But it felt damn good to make profits when the rest of the markets, equity and fixed-income, were getting haircuts this week. It's what we do. Please rest assured that I will never recommend something in my Real Money column and not follow up if it wobbles.
