Why New Fortress Energy Stock Just Fell 20.3%
Key Points
After a wild swing on Tuesday, NFE stock tanked 20.3% today.
The company successfully negotiated with its creditors, ensuring its survival.
As part of the deal, existing shareholders will face serious dilution.
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New Fortress Energy (NASDAQ: NFE) fell 20.3% on Wednesday. The S&P 500 and the Nasdaq Composite lost 1.4% and 1.5%, respectively.
The struggling liquefied natural gas (LNG) company struck an agreement with creditors yesterday that will allow the company to survive, but one that comes with serious strings attached. The news sent the stock flying up more than 30% before giving away most of the gain. Today, the stock was in freefall.
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NFE survives -- barely
Under the agreement, New Fortress will split into two separate companies. "NewNFE" will continue trading publicly and retain operations in Jamaica, Puerto Rico, and Mexico. Meanwhile, a new private entity dubbed "BrazilCo" will take ownership of the company's entire Brazilian business -- and go straight into the hands of its creditors.
That's no small concession. Brazil was a major piece of New Fortress's earnings puzzle, so investors are now grappling with what NewNFE looks like without it. It seems the initial excitement over a deal faded as reality set in.
Shareholders will see major dilution
Image source: Getty Images.
Shareholders didn't get wiped out entirely, but under the new structure, existing common stockholders will be diluted down to just 35% of NewNFE. Creditors claim the remaining 65% stake, plus $2.5 billion in preferred shares on top of that. That means more dilution is likely.
And NewNFE still faces the task of actually executing a turnaround. A leaner balance sheet buys time, but it doesn't guarantee a recovery.
This is not a stock I would own.
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Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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