Why NFE Stock Just Popped 33.9% -- Then Slumped
Key Points
New Fortress Energy was able to negotiate with its creditors to save the company, but NFE will be forced to give up significant assets.
The deal sees the company slash its corporate debt from $5.7 billion to $527.5 million.
Existing shareholders will be diluted to 35% of the restructured company's common equity, with potential for further dilution from $2.5 billion in convertible preferred shares.
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New Fortress Energy (NASDAQ: NFE) jumped as much as 33.9% on Monday before giving most of the gain away. Shares finished the day up just 5.5%.
The embattled liquefied natural gas (LNG) company announced it has reached a deal with creditors that will see its mountain of debt slashed, keeping the company alive. But it comes at a steep cost. Today's wild swings came as investors reacted to the initial news, only to realize the deal's implications.
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How the NFE deal works
The company will be split into two entities -- "NewNFE" and "BrazilCo." The latter will be held privately by New Fortress's creditors, while NewNFE remains publicly traded. BrazilCo is so named because it will own the entirety of New Fortress's Brazilian operations, leaving NewNFE with its operations in Jamaica, Puerto Rico, and Mexico.
That will have major implications for NewNFE's bottom line -- New Fortress Energy's Brazil operations were a significant part of its earnings mix.
Dilution is still a risk
And while the deal did not wipe out common shareholders, they will be diluted to just 35% of the new company. Its creditors will own the rest, as well as $2.5 billion in preferred shares. That means shareholders in NewNFE will face even more serious dilution risk.
Image source: Getty Images.
And the new entity still has to successfully turn the ship around, or it may find itself in a similar position a few years from now. This is not a stock I would own.
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