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OEG convertibles and other transitional news -3

17:44 19-Nov-20

AES has priced $800M and $1b of its new debt at 1.375% and 2.450%, respectively.  This is a huge savings over the 5.5 and 6% being redeemed.

We also got official notice of the next LUMN dividend, which I foreshadowed, with a November 27 ex-date.

I'm afraid we're likely to see a lot of not very meaningful transitional news over the next two months, and Golar's press release at the open about partnering with Black & Veatch to explore ammonia & hydrogen production along with carbon capture fits that description.  It is interesting from a macro perspective in that even energy businesses focused developing nations are looking to move forward from natural gas in order to keep their addressable market open to the rich world.  Although it's good to see Golar considering the future, the initiative is clearly at such an early stage with Golar that it should not move the needle in the short term.

We also got details for 2026 & 2031 maturities on the new AES debt, along with indication that the company will put the proceeds toward refinancing was well as funding new green projects.  I'll probably only update this note once more to document the rates before moving on.

In the meantime, the broader market is being given pause by an uptick in weekly jobless claims and the current pandemic challenges, but this doesn't change my outlook for caution in December followed by continued market gains.

On 11/19/20 2:18 AM, Esekla wrote:

To kick off its Capital Markets Day, ABB has revealed that it is looking to sell its Turbocharging and Power Conversion divisions, in addition to the Mechanical Power Transmission one linked to at the beginning of the note below.  Management says there is no hurry, though, and it "will seek the best value-accretive solution" for each.  This will eventually leave ABB as more of a pure play on industrial automation.

It is also updating guidance, saying it targets 3-5% revenue growth, with a third of that being from acquisitions.  EPS growth is expected stay ahead of revenue growth.  It also claims to have achieved net savings of $500M a year ahead of schedule.

I'm reporting on this because the shift in focus is interesting, even if not attractive at current pricing.  I doubt what's said will spook the market into significantly changing that pricing.  Nonetheless, I'll continue to keep an eye on the presentations and stock.  Unless I'm wrong about the market sentiment, though, don't expect to hear more from me on ABB this week.

Also of technological but not investment interest are Nokia's records in bonded high-frequency commercial wireless network and GPON fiber product throughput.

The pandemic has accelerated many transitions, and I will attempt to keep pace by moving my usual year-end summary updates up to the Thanksgiving holiday.

On 11/18/20 6:44 PM, Esekla wrote:

As if in prelude to ABB's strategy day tomorrow, Orbital Energy Group has issued $2.215M of convertible debt at 10% interest to an institutional investor.  Orbital has reserved 4M shares as potential payment, which the debt holder can begin to redeem at its option in six months, at the rate of $250K per month.  If Orbital issues shares as payment, the conversion rate will be 80% of the lowest closing price over the preceding 10 days.  The company can also choose to pay in cash, and can prepay at 115%.  OEG didn't react meaningfully to this after hours, but these terms are almost as bad as it gets and insufficient to keep the company afloat for long.  I suppose the thinking is that anything is better than bankruptcy, and that we'll see what happens with a new administration in Washington at the end of January. 

At the other end of the spectrum is an 8-K indicating that AES is also shopping debt to support its green financing framework.  This is probably related to the sPower buyout, and renewable development is once again the rage on both sides of the Atlantic, as Xebec has noted.  In the meantime, North American oil is making the best of the last days of the current administration.  So is the SEC, but one of the few things we may actually be able to get a good read on before inauguration day is its new leadership, and that will matter at least a little to BGCP.  Unlike some, I see these moves as prelude to a peaceful transition of power in Washington, despite the delay.  The market can probably ignore the rough going in the real world between now and then, especially with Moderna providing even more vaccine hope than Pfizer, but I remain wary and ready to take advantage of potential December profit taking.

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