RE:RE:RE:RE:RE:The $120m question: Pay down debt or buy back shares?No one doubts that the current depressed price for Natural Gas "kiiled" the sp, and continues to be a threat. Peyto has very limited options of increasing sales to North American markets due to lack of access. And I believe that his has held the CEO from implementing buy-backs, he wants to conserve cash for loan and dividend payments. Peyto must, as most companies, maintain the debt-to-equity ratio to continue to enjoy competitive interest rate on its loans. This is beside the point, I just tried to give Yasch22 a case for buybacks.
Let us all hope that the Feds can help the BC LNG Project happen!
Cheers!
ceremony wrote: yes I am well aware of that arbitrage. and in a PERFECT world peyto would do that. but it is FAR from perfect for peyto right now, wouldn't you agree?
if I was peyto CEO and I wished to put the shareholders in grave danger of losing their entire investment in the years ahead I would do EXACTLY as you describe.
And if I was a homeowner wanting to roll the dice a bit, I would take out a second mortgage and go buy STOCKS with it.
WHAT COULD GO WRONG?
ask yourself why Peyto has not back a single share of stock yet. what might the CEO be thinking?
EquityInvest wrote: Ceremony: Yasch22 was looking for a "case" where buy-backs trump paying down debt. Cutting down dividends is always prudent but this almost, always negatively impact shareholders value. In this case, as Peyto currently pays 6.92% dividends vs 4.39% interest on loan, reducing the number of shares outstanding through share buy-back is a better strategy.
ceremony wrote: a prudent steward of capital would CUT THE DIVIDEND in that case.
EquityInvest wrote: Yasch22 - As you are looking to justify share-buyback as a superor strategy over paying-down debt, in terms of improving shareholders value, one case that can be made is that it at current sp of $10.41 Peyto is paying out dividend at a rate of 6.92% (.06/m * 12 months / $10.41) which is much higher than the available 4.39% re-financing rate. In Peyto's case, it is more of a drain on its cash flow to continue to pay 6.9% dividends on the current outstanding shares rather than continue paying 4.39% interest on short-term loan. It will benefit the company more to buy back shares thereby reducing the number of shares that the company will be paying dividends on. However, share-buy backs do not always work out as "bad-timing" can ruin the strategy (i.e., greater market sentiment continue to deteriorate).
Just my opinion.
Yasch22 wrote: Ceremony -- or anyone -- I'd be interested in seeing a case made for buying back shares as a superior strategy to paying down debt.
Assumption: You know Peyto will generate $120m in net cash in 2018. Which is the better course to follow: pay debt or cancel shares?<br />