iftttwall

Today’s reincarnation of the “Trump Rally”, manifested by a jump in small-cap stocks, which as a reminder are the best equity proxy for the future of the US economy, and a long-overdue spike in US dollar…

… is due to the previously observed spark in Trump tax plan talk, whose outline Paul Ryan said earlier could be unveiled as soon as September 25, as well as a report that Trump’s tax reform discussions would include Senate Democrats. Now, adding to the speculation that Trump may actually pull off another deal with Democrats over GOP objections, is a report from ABC that one week after allying himself with Democratic congressional leadership on efforts to raise the debt limit and provide money for hurricane relief, on Wednesday night Trump will host top Democrats, Senate and House Minority Leaders Chuck Schumer and Nancy Pelosi for dinner at the White House to discuss DACA, health care reform along with “fall deadlines” – two points that have become Democrat bargaining chips for Trump’s agenda.

While not explicitly mentioned, Trump will certainly also discuss his proposed tax plan. More details on tonight’s meeting from ABC:

The focus of Wednesday’s dinner, according to sources familiar with the meeting, will be to discuss protections for so-called Dreamers, undocumented immigrants currently protected by the Deferred Action for Childhood Arrivals (DACA) policy, which the administration said last week it would end in six months. The trio will also talk about efforts to stabilize health care markets.

 

The dinner will follow a bipartisan roundtable between a number of leading moderate House Democrats with Trump Wednesday afternoon.

Rep. Josh Gottheimer, D-N.J., a leader of the House Problem Solvers Caucus, said the White House legislative affairs office invited him and other members to discuss health care, tax reform and infrastructure Wednesday afternoon.  “I’m hoping this is part of a new era of bipartisanship. Because that’s what people want,” he said.

Gottheimer, who attended a bipartisan meeting at the White House last week on New York and New Jersey infrastructure projects, told reporters he wants to discuss the status of young undocumented immigrants with Trump, and push for a vote to address the expiring DACA policy.  “If there’s bipartisan support to get something done, let’s bring it to the floor and get legislation passed,” he said.

Among the republicans invited to the session is Tom Reed, the other co-chair of the Problem Solvers Caucus. It was not clear if Gary Cohn will be present at tonight’s dinner, however.

The bipartisan meeting will take place at 2 p.m. in the White House Cabinet Room, according to the president’s schedule.

Meanwhile, as Rasmussen reports, “despite their failure to advance President Trump’s agenda, congressional Republicans aren’t happy about his outreach to Democrats in the House and Senate, but most voters think it’s a great idea.”

A new Rasmussen Reports national telephone and online survey finds that 66% of Likely U.S. Voters say it is good for the country if Trump works with congressional Democrats to advance his agenda. Just 13% think the bipartisan cooperation is bad for the country, while 21% are undecided. 

 

Only 19% believe the president should continue to rely on congressional Republicans to pass his agenda. That’s down from 29% in early April. Sixty-five percent (65%) now feel he should reach out more to Democrats in Congress for help versus 58% who felt that way five months ago. Sixteen percent (16%) are not sure.

 

Republicans (72%) are even more enthusiastic about the president working with congressional Democrats than Democrats (62%) and voters not affiliated with either major party (63%) are.

While the outcome of the dinner is unknown, judging by the market’s reaction and the rekindling of the Trump trade, it appears that at least according to trader, Trump’s pivot away from Republicans and toward democrats, where the quid-pro-quo is insurance/DACA in exchange for tax reform, suggests the probability of a successful outcome is rising by the minute.

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Authored by Ralf Zimmermann, Head of Equity Strategy at Bankhaus Lampe KG,

Let’s forget for ten minutes the upcoming Q3 reports (supportive for stocks), US policy risks (probably the biggest medium-term risk for stock markets), hurricane-related diversions and North Korean rumblings – and turn to a pretty fundamental issue, most likely the biggest one in contemporary capital markets: Central bank interventions in and manipulation of capital markets. 

The Bank of Japan has been leading the field all the time. In terms of size (BoJ’s balance sheet is now close to the size of Japan’s national GDP), in terms of the dependency of government financing on its central bank (BoJ market share in government bond market now stands at ~ 45%; annual BoJ buying of government bonds is twice the annual tax revenue and equals the annual public budget – terminating bond buying would trigger an immediate crash in Japan) and in terms of variety of assets the BoJ is buying (government bonds, REITs – and stocks).

It’s the latter which is of particular interest for stock investors. There had been an interesting article in Bloomberg highlighting the distortions the BoJ is creating in the Japanese ETF market as the BoJ accounts for 75% of the total ETF market (see the attached article at the end of the snippet).

In Euroland, investors are wondering when the ECB is going to start crossing this frontier and step into equities – as a means to circumvent the "unwelcome" scarcity of government bonds and ownership limitations. Will this be the main policy tool of last resort in a next crisis/crash?

It is tempting for stock investors to look forward to a new price-pushing co-investor, but they should think twice about what they really wish for in the long run.

Let´s broaden Bloomberg’s analysis a bit. Some basic lessons can be learned (see chart 1):

• Central bank purchases of stocks push markets upwards. The BoJ certainly contributed heavily to the massive rally in Japan.
• However, it’s not a silver bullet for the long run. The Topix peaked in August 2015 and is still some 4% below the level back then. In this period, the net asset value of BoJ ETFs has risen by close to Yen 11 trillion or > US$ 100 bn (based on Bloomberg data). In the year to date, the Japanese market has underperformed the US and Euroland – and is only flat in euro terms. Despite massive central bank support, stocks remain a two-way street.

Chart 1: Bank of Japan net asset value of Japanese stock market ETF vs. Topix

Source: Bloomberg

Over time the BoJ has become increasingly important. Its share of the Japanese stock market has risen from 0% in late 2010 to now 5% (see chart 2). This has been funded from thin air, i.e.by simply printing money. The interesting point is that the incremental gains of one percentage point in ownership are realised in an increasingly shorter time period. It took 4 1/2 years to reach 2%, but only 2 1/4 years to add another 3 percentage points (to the current 5%). This reflects two patterns: the declining positive impact of BoJ buying on stock prices and the increase in buying volumes by the central bank.

Investors should not be fooled. This is serious and creates massive long-term problems:

• At some companies, the BoJ seems to have already reached a visible double-digit stake (e.g. at Fast Retailing). Is the BoJ going to control private companies?
• What is going to happen when the BoJ tries to exit the stock market again? Can a stock market crash and/or recession be avoided?
• What happens if the BoJ is not able to exit due to economic cooling/declining stock prices and the resulting public outcry. If one extrapolates the recent gains in ownership to the future – and does not assume another decay of the positive impact on stocks or any further increase of volumes – it will take only 13 years and the BoJ owns one quarter of the Japanese stock market. Ultimately, the BoJ is nationalising the stock market and thus eroding one fundamental pillar of a market-based economy (bear in mind it already "owns" the government bond market).

Chart 2: Share of Bank of Japan ownership in Japanese stock market

Source: Bloomberg, BHL Research

Looking at the slow motion attempts of the key central banks to withdraw their interventions, their back and forth even in better economic times after they have dived so deeply into capital markets in bad times, gives sufficient clues about the difficulties central banks are facing. As a starter, look at the recent ECB press conference. It may become pretty asymmetric: a tiny retreat in an upswing, followed by much bigger additional involvement in future downswings.

Central banks like the BoJ want to "help" markets but they risk destroying them. In my view, this is the great paradox of modern central banking.

In the longer run, this is the biggest Damocles sword hanging over markets.

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Following a weak 30Y auction, headlines struck that special prosecutor Robert Mueller is said to have "red hot" focus on social media with Bloomberg reporting his team probing Russia-backed fake news on social media. The instant reaction was dollar weakness and gold strength.

This just continues the narrative started last week with Facebook admitting collusion with Russian operatives…

• MUELLER PROBE IS SAID TO HAVE `RED-HOT' FOCUS ON SOCIAL MEDIA
• MUELLER TEAM SAID SEEKING MORE EVIDENCE FROM SOCIAL MEDIA COS.
• MUELLER TEAM PROBING RUSSIA-BACKED FAKE NEWS ON SOCIAL MEDIA

Bloomberg adds:

"The ability of foreign nations to use social media to manipulate and influence elections and policy is increasingly seen as the soft underbelly of international espionage, another official said, because it doesn’t involve the theft of state secrets and the US doesn’t have a ready defense to prevent such attacks.

 

Agencies including the Office of the Director of National Intelligence and the Federal Bureau of Investigation are now examining what could be done to prevent similar interference and espionage in future elections, starting with the 2018 midterm congressional vote, the official said.

 

At the same time, Russia is ramping up its hacking operations, Director of National Intelligence Dan Coats said.

 

“Russia has clearly assumed an even more aggressive cyber posture by increasing cyber espionage operations and leaking data stolen from those operations,” Coats said Wednesday at the Billington Cybersecurity Summit in Washington."

 

Mueller’s office declined to comment on the status of the investigation.

And the reaction is negative for the dollar and positive for gold…

As a reminder, we noted last night what a farce this current witch hunt has become… just in case it isn't crystal clear why the above statement is so ridiculous, please allow us to demonstrate with one simple chart.  This is how the $50,000 worth of 'Russian' ad buys on Facebook compares to the $1.2 billion that Hillary spent on her campaign…please note, this is not a mistake…the $50k literally isn't even big enough to show up on the chart. 

All of which means that one of the following three things is true:

i) Facebook delivers the greatest ROIC to advertisers in the history of mankind,

 

ii) Hillary is the worst allocator of capital ever

 

or iii) this whole narrative is just beyond dumb.

This is just becoming increaingly embarrassing for the establishment as evidenced by Mark Warner, the committee’s top Democrat and a former telecommunications company founder, comments… “This is the Wild, Wild West."

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Concluding this week’s series of lousy Treasury auctions was today’s reopening of $12 billion in 29-Year-11-month Bonds due August 2047, which priced in line with the previous poor 3Y and 10Y auctions, printing at a high yield of 2.790%, a tail of 0.3bps to the 2.787% When Issued, and the lowest yield since last October’s 2.47%.

As in the recent auctions, the internals were lackluster, with a Bid to Cover of 2.207, below last month’s 2.319%, and below the 6MMA of 2.283%. This was the lowest BTC going back to May’s 2.191%, and the lowest for a reopening since year-ago auction. Indirect bidders took down only 58.8%, a sharp drop from last month’s 66.8%, and below the 6 month average of 62.8%. Directs were awarded 6.8%, slightly above August’s 5.4%, leaving Dealer holding 34.4%, above the recent average of 30.1%, and the most since May.

Overall, a poor auction which came during a day when the long end has been pushing wider, not helped by today’s return of the Trump “tax reform” rally, or the numerous rate lock deals following this week’s surge in primary issuance. The best news for bond bulls after today is that the primary issuance week is finally over, although more pain may be in store following tomorrow’s inflation report…

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Confirming, and sending the clearest sign of his previously discussed pivot toward Russia and away from NATO and the West, on Tuesday President Recep Tayyip Erdogan announced that Turkey had signed a deal to purchase a Russian surface-to-air missile system, and paid the first installment. The deal cements Turkey’s recent rapprochement with Russia, despite differences over the war in Syria, the downing of a Russian fighter jet over Turkey in late 2015 and the assassination of a Russian ambassador earlier this year, and comes as Turkey’s ties with the United States and European Union have become strained to the point of breaking.

Although the missile purchase from Russia was made public several months ago, Erdogan’s announcement was the first confirmation that Turkey had transferred money to pay for the S-400 missile system.

“Signatures have been made for the purchase of S-400s from Russia,” Erdogan said in comments published in several newspapers on Tuesday. “A deposit has also been paid as far as I know.”

As the NYT writes, “the purchase of the missile system flies in the face of cooperation within the NATO alliance, which Turkey has belonged to since the early 1950s. NATO does not ban purchases of military hardware from manufacturers outside the American-led alliance, but it does discourage members from buying equipment not compatible with that used by other members.”

According to reports in the Russian media, Turkey is to get four batteries of S-400 launchers complete with targeting radar and control posts. Some aspects of the deal are reportedly to be finalized, but Russian officials said the contract furthers Russia’s geostrategic interests.

* * *

Predictably, the Pentagon promptly reiterated its concerns over the deal, which it said undermines inter-operability of weapons systems among NATO allies. “We have relayed our concerns to Turkish officials regarding the potential purchase of the S-400. A NATO inter-operable missile defense system remains the best option to defend Turkey from the full range of threats in its region,” spokesman Johnny Michael said in a statement.

A NATO official in Brussels where the alliance is headquartered, said that no NATO member currently operates the Russian missile system and that the alliance had not been informed about the details of the purchase by Turkey. “What matters for NATO is that the equipment allies acquire is able to operate together,” the official said, speaking on the condition of anonymity as required by alliance procedures. “Interoperability of allied armed forces is essential to NATO for the conduct of our operations.”

However, on Wednesday Turkish President Recep Tayyip Erdogan slammed the critics of Turkey’s deal with Russia, saying Ankara had no intention of waiting for the protection of its NATO allies.

“They have gone crazy because we made a deal for S-400s,” Erdogan said Wednesday in a speech to the ruling AKP mayors in Ankara, as cited by Hurriyet.

“What do you expect? Should we wait for you? We take care of ourselves in every security point. We are taking precautions and we will continue to do so,” the Turkish leader said.

Erdogan criticized the reluctance of US and Israel to authorize supply of combat drones to Turkey as another example of how Turkish security was sidelined by its allies.

“When they did give [drones], their repair and maintenance put us in a difficult position. Now [Turkey] has come to a point where it can produce its own unmanned, armed air vehicles. And now they are uncomfortable with that,” Erdogan added.

Erdogan also dismissed issues of interoperability, brand loyalties or the geopolitical optics of such a sale. “Nobody has the right to discuss the Turkish republic’s independence principles or independent decisions about its defense industry,” the daily newspaper Hurriyet reported him as saying.

“We make the decisions about our own independence ourselves,” he said. “We are obliged to take safety and security measures in order to defend our country.”

As the NYT adds, Erdogan’s announcement — made to Turkish journalists aboard his presidential jet as he returned from Kazakhstan — appeared timed as a response to two judicial cases announced last week in the United States. One is against his presidential bodyguards, who are charged with assaulting protesters when Mr. Erdogan visited Washington this year. The other is against a group of Turks, including a former minister, accused of breaking United States sanctions against Iran. Erdogan has angrily criticized both cases.

* * *

The S-400 SAM is designed to detect, track and then destroy aircraft, drones or missiles. It’s Russia’s most advanced integrated air defense system, and can hit targets as far as 250 miles away. Russia has also agreed to sell them to China and India, both nations who are masters at reverse engineering.  Most concerning for NATO, however is that the systems delivered to Turkey would not have a friend-or-foe identification system, which means they could be deployed against any threat without restriction.

Turkey has been weighing options for acquiring long-range SAMs for years. In 2013, Ankara surprised other NATO members by announcing that it was going to purchase the FD-2000 system from China, sparking criticism from Washington. Defense observers speculated that Turkey played the China card to put pressure on its allies and get better terms for buying a NATO-compatible SAM system, such as the US-made Patriot PAC-3. The Chinese deal stalled and was eventually scrapped, with Turkey reportedly unhappy over Beijing’s reluctance to hand over the technology behind the advanced system. Last year Ankara announced that it was in talks with Russia over a potential purchase of the S-400.

Turkey has other reasons for the missile purchase. It needs to cultivate good relations with Russia, and it also needs to build its own military defense, said Asli Aydintasbas, a fellow at the European Council on Foreign Relations. “Turkey wants the deal,” she said, “and Russia is only too happy to drive a wedge into the NATO alliance.”

While NATO’s collective defense should have been sufficient for Turkey – NATO deployed Patriot missiles there during a rise of tensions with Syria in the past – Erdogan lost trust in the West since last year’s failed “coup attempt”, which he slammed repeatedly as a Western plot to oust him, and appears determined to secure his own defense.

Furthermore, the transfer of technology from Russia is attractive to Turkey: Erdogan has spoken also of his frustration at having requests to the United States for drones turned down, and of his satisfaction that Turkey developed its own.

Notably, Erdogan’s announcement of the deal with Russia came after Germany said that it was suspending all major arms exports to Turkey because of the deteriorating human rights situation in the country and the increasingly strained ties. “We have put on hold all big requests that Turkey sent to us, and these are really not a few,” the German foreign minister, Sigmar Gabriel, said during a panel discussion in Berlin on Monday, according to Reuters.

While the purchase of Russian missiles will take cooperation between the two nations to a new level, but is not the first time that Turkey has bought military equipment from Russia. It turned to Moscow in the early 1990s to buy military helicopters and armored personnel carriers. Last year, Russia and Turkey reached an agreement to revive a suspended natural-gas pipeline project.

Meanwhile, as the US military-industrial complex has flourished in recent months following a spike in deals with Saudi Arabia, South Korea and other nations courtesy of rising geopolitical tensions, Russia has remained largely squeezed out of the arms market in Western and Eastern Europe, even in countries that once bought nearly all their weapons from the Soviet Union, has looked for years to NATO’S eastern flank as a promising market and the alliance’s weakest link. It has also sold weapons to Greece, another NATO member and to Cyprus, which is not a member of NATO but houses British military bases and effectively serves as an outpost of the alliance.

Meanwhile, as Turkey’s suspicions toward the West have grown, relations with Russia warmed, driven by the personal relationship between Erdogan and Vladimir Putin. Erdogan has expressed personal admiration for Putin, to the consternation of many European and American leaders, if not President Trump. Erdogan has also shown a preference for the Russian model, with its sense of restoring a lost empire, returning Turkey to a more independent place in the world and rejecting Western democracy.

At the same time, the fact that Turkey belongs to NATO has only increased Mr. Putin’s desire to forge strong relations with Mr. Erdogan despite their differences over the conflict in Syria.

“Mr. Putin and myself are determined on this issue,” Erdogan told journalists about the missile deal.

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Authored by Michael Snyder via The Economic Collapse blog,

When will America finally wake up? 

The borrower is the servant of the lender, and we now have a colossal 20 trillion dollar chain around our collective ankles. 

We have willingly enslaved ourselves, our children and our grandchildren, and yet our addiction is so insatiable that we continue to add more than 100 million dollars to our debt load every single hour of every single day.  The national debt is sitting at a grand total of $20,162,176,797,904.13 at this moment, but now that the debt ceiling has been lifted that number is expected to shoot up very rapidly toward 21 trillion dollars by the end of the year.  The national debt had been held down by accounting tricks to keep it under the debt limit for many months, but every time this has happened before we have seen the national debt absolutely explode back to projected levels once the debt ceiling was raised.

But very few of our “leaders” in Washington seem to care that we are in the process of committing national suicide.  There is no possible way that we will be able to continue to be the most powerful economy on the planet if we continue down this road.  During Obama’s eight years in the White House, we added more than 9 trillion dollars to the national debt.  That certainly improved things in the short-term, because if we could go back and take 9 trillion dollars out of the economy over the past 8 years we would be in an absolutely nightmarish economic depression right now.

But even with all of this borrowing and spending, our economy has still only grown at an average rate of just 1.33 percent a year over the last 10 years.

And by going into so much debt, we are literally destroying the future for our children and our grandchildren.

What we are doing to them is beyond criminal, and people should be going to prison over this.  But instead we just keep rewarding these Congress critters by sending the same cast of characters back to Washington over and over again.

Are we insane?

The feds are now projecting that the official yearly budget deficit will reach 1.4 trillion dollars by 2027.  Of course federal projections always end up being far more optimistic than reality.

And we are already spending about 500 billion dollars a year just on interest on the national debt, and by 2027 that number is projected to jump to 760 billion dollars a year.

This is complete and utter insanity, and yet we just can’t control ourselves.  The government continues to throw around money as if there is no tomorrow, and our tax dollars are being wasted on some of the most ridiculous things imaginable.

For instance, the U.S. military is spending 42 million dollars each year on Viagra.

We must stop this madness, and we must stop it now.  I really like how an editorial in the Houston Chronicle made this point…

Tax-and-spend politics are bad, but borrow-and-spend is worse. While we have some control over whether our lawmakers raise taxes, our children and grandchildren don’t get a vote on whether we burden them with debt.

 

Over the long run, huge government debt takes cash out of the economy and drives up interest rates, slowing economic growth and hurting private enterprise.

 

To protect the U.S. economy, Republicans need to nip plans to eliminate the debt ceiling in the bud and then get to work balancing the federal budget.

Will we ever learn?

Since the beginning of our nation, many of our most prominent statesmen have been warning about the dangers of accumulating government debt.  For example, during his farewell address President George Washington instructed the country to “avoid … the accumulation of debt not only by shunning occasions of expense but by vigorous exertions to discharge the debts, no throwing upon posterity the burden which we ourselves ought to bear.”

And Thomas Jefferson famously said that he wished that he could have added one more amendment to the U.S. Constitution which would have banned government borrowing…

“I wish it were possible to obtain a single amendment to our constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of it’s constitution; I mean an additional article, taking from the federal government the power of borrowing.”

This is one of the primary reasons why we must abolish the Federal Reserve system.  The Federal Reserve was actually designed to create a government debt spiral from which we could never possibly escape.  That is why the size of our national debt has gotten more than 5000 times larger since 1913, and we are never going to permanently solve our national debt problem until we get rid of the Fed.

Most Americans don’t realize this, but the path that we are currently on is not sustainable by any definition.  Debt levels are growing much, much faster than GDP, and that is a recipe for disaster.  The following is an excerpt from one of my previous articles…

We are living in the greatest debt bubble in the history of the world.  In 1980, total government and personal debt in the United States was just over the 3 trillion dollar mark, but today it has surpassed 41 trillion dollars.  That means that it has increased by almost 14 times since Ronald Reagan was first elected president.  I am searching for words to describe how completely and utterly insane this is, but I am coming up empty.  We are slowly but surely committing national suicide, and yet most Americans don’t even understand what is happening.

 

According to 720 Global, total government debt plus total personal debt in the United States was just over 3 trillion dollars in 1980.  That broke down to $38,552 per household, and that figure represented 79 percent of median household income at the time.

 

Today, total government debt plus total personal debt in the United States has blown past the 41 trillion dollar mark.  When you break that down, it comes to $329,961.34 per household, and that figure represents 584 percent of median household income.

Sadly, most people are entirely clueless about what we are doing to ourselves.  Investors are the most optimistic that they have been in years, and most of the talking heads on television seem to believe that the party can go on indefinitely.

But that is simply not possible.

And the same thing is true from a global perspective as well.  The following comes from Chris Martenson…

First: our entire economic model, which dependent on borrowing at a faster rate than income (GDP) grows, is something that simply cannot be maintained at its current rate or level. Check.

 

Second: depleting species, soils and aquifers are all wildly unsustainable practices that are accelerating. Check.

 

Last (and most glaring of all): the world’s leadership (and we use that term very loosely) continues to insist on adhering to the indefensible idea that infinite growth on a finite planet is possible  Checkmate.

The clock is ticking, and disaster awaits at the end of this road.

Will somebody please do something?

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Seadrill Ltd., the London-based offshore driller controlled by billionaire Norwegian shipping magnate John Fredriksen, filed bankruptcy protection in the Southern District of Texas after working out a deal with most of its senior lenders to inject $1 billion of new money into the company pursuant to a pre-arranged plan of reorganization.  The filing was largely expected and came just a couple of days before the company’s $843 million 5.625% Notes of 2017 came due. 

According to Bloomberg, Fredriksen spent more than 18 months trying to strike an agreement with creditors to restructure the industry’s biggest debt-load after crude’s collapse curbed demand for Seadrill’s services.  Daily leases for the company’s rigs, which once commanded up to $800,000, have dropped to around $200,000 as cheap oil from U.S. shale drilling continues to flood the market.

“The deal gives us a great liquidity cushion,” allowing Seadrill to survive the “mother of all downturns,” Chief Executive Officer Anton Dibowitz said by phone. The new capital is “underpinned” by top shareholder Hemen Holding Ltd. and more than 40 percent of bondholders support the plan along with 97 percent of Seadrill’s secured bank lenders, he said. Dibowitz expects more bondholders to sign up to the deal.

Bondholders are currently predicting their ultimate recovery is worth about 25 cents on the dollar as of today.

Of course, Seadrill is just the latest bankruptcy filing in an industry that has been devastated by persistently weak commodity prices.

In late July, Ocean Rig UDW Inc. filed for bankruptcy protection in the U.S. Hercules Offshore Inc., GulfMark Offshore Inc., Toisa Ltd. and Vantage Drilling Co. have also spent time in bankruptcy court since oil and gas prices cratered.

 

Paragon Offshore PLC emerged from Chapter 11 in August but was forced back into bankruptcy after it was unable to transfer two rigs to its reorganized entity. Its successor, Paragon Offshore Ltd., isn’t under bankruptcy protection and was unaffected by Paragon Offshore PLC’s new filing.

Under the proposal, lenders will extend the maturity on $5.7 billion in debt, with no amortization payments due until 2020.  Meanwhile, the company will get a new $1 billion capital injection which will come in the form of $860 million in secured notes and $200 million in equity.  If bondholders ultimately sign on to the current deal, they would be converted into a 15% pro forma ownership stake in the restructured company.  Here is a brief recap of the reorg plan from Seadrill’s presentation:

After the restructuring is complete, Seadrill’s capital structure should look something like this:

Meanwhile, some very expensive lawyers at Kirkland and Ellis are predicting that the whole process should be complete by next summer.

And, here are the obligatory “hockey-stick” financials that accompany most bankruptcy disclosure statements…”everything should be awesome” again in just a couple of years.

Finally, here is a list of the advisors who will be leeching millions in fees from the bankruptcy estate throughout the process.

The Company has engaged Kirkland & Ellis LLP as legal counsel, Houlihan Lokey, Inc. as financial advisor, and Alvarez & Marsal as restructuring advisor. Slaughter and May has been engaged as corporate counsel, and Morgan Stanley served as co-financial advisor during the negotiation of the restructuring agreement. Advokatfirmaet Thommessen AS is serving as Norwegian counsel. Conyers Dill & Pearman is serving as Bermuda counsel.

As always, we very much look forward to reviewing future expense reports from these folks throughout the bankruptcy process.

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