Thread by @puppyeh1

I am long a little bit of $MDR here (ard $2). Clear risk of quick bagholdership + B/K not withstanding, this seems a massively mispriced option (both stock and the bonds).

THREAD

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1) The co definitely seems low on liquidity and is stressed/distressed but B/K does not seem imminent. They have not busted any covenants (nor will next Q unless there is some massive further deterioration) + have $1bn of extant liquidity today

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2) The co proactively put out a PR suggesting 'offers' (plural, ie more than one bidder) for their Lummus business 'exceeding $2.5bn'. It is exceedingly rare for a co to go on record re the bid level received, suggesting there is some credibility to the number

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3) When $CBI decided to merge w/ $MDR back in late 2017, they also ran a sales process for Lummus. At the time they had >30 bidders (some above $3bn) and they invited 5 bidders to a final bidding round. Not much has changed since then -> further credit to realness of the bid

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4a) The main reason $CBI sold itself to $MDR was because even if they sold Lummus the $$ was not enough to fix legacy $CBI (the troubled contract book, etc). Since then $MDR has already accounted or $1bn+ of overruns and recapitalized slightly (the $300mm prefs)

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4b) Moreover pro-forma for a Lummus sale $MDR is actually not that levered (well under 1x net) and with other asset sales (pipe, storage), $MDR net debt levels approach flat. Meaning the real issue is simply negative W/C unwind (its negative $1.8bn today)

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5) W/C is the real issue but the key point is if Lummus bids are real, then that is $2.5bn of near-term liquidity (w/ no tax leakage) to support W/C outflow in next 6+ mos along w/ other asset sales. Meanwhile the co continues to book huge amounts of new biz (3x B/B recently)

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6) Which in turn strongly suggests clients remain pretty confident $MDR will stick around.

Playbook from here: some combination of Lummus full/partial sale + pipe/storage closing + any kind of line under Freeport/Cameron losses = much higher stock px

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What's it worth? $MDR is still a terrible business and basically unforecasteable (imo) but simply going from 'near B/K' to 'distressed' gets you to $6-7/shr or higher I think (this would be 3x 'normalized' EPS). Ie multibagger territory

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EXTRA-STRONG disclosure on this one, there are many unknowns and its clear B/K is very much a possible outcome. Big boy pants only, caveat emptor, size appropriately 😅

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