Toomas Pelberg

Oregon is intentionally creating a generation of illiterate citizens.

Wife this morning: "You are so much more than your portfolio. Time to take a break."

We just launched our US CPI Trimmed Mean Index. Removing the largest positive and negative price movements before calculating inflation. Forecasting a cleaner signal before the 'noise'. 👇🧵

$KOS Kosmos raised $182 million yesterday at a price of $1.90, which is a 21% discount to the closing price. The offering has generated strong demand, and the management team participated by purchasing approximately 3 million shares (the first insider purchase in a long, long time). For full transparency, I also participated in this capital raise. I believe this offering was forced by the RBL banks to extend the 1.35bn facility. During the earnings call, the company stated they plan to seek an extension over the summer, ahead of the September 2026 deadline, when the liquidity test could trigger early repayment. I don’t believe this raise was necessary, but banks forced them to act. Banks that have been very supportive of Kosmos—extending the RBL facility and granting numerous waivers in recent months—are now trying to reduce risks through this move. I wonder whether they are facing issues with many other companies, given reports of turbulence in the US private credit market. Some people argue that $182m is insignificant compared to the around $3bn net debt reported in Q4, but they overlook key details. As of December 31, the RBL total was $1.35bn, with $1.20bn drawn and $150m undrawn. In January, they issued a $350m Nordic bond and repaid $100m of the RBL. Then, in February, they announced the sale of assets in Equatorial Guinea to Panoro, expected to close by mid-year, which should lead to an additional $200m repayment, as those assets were collateral for the facility. As a result, the existing bank debt is now approximately $900m, making this capital raise quite significant to this number. It’s fair to say that banks lost EG collateral, and GTA and GoA are now secured against different loans, leaving them with little safety margin outside Ghana. Nevertheless, Jubilee's performance remains robust, and its asset value should exceed $1 billion, even if oil prices stay low. This is why companies often prefer bond financing to bank loans, even though bonds are generally more expensive. Bondholders were not asking the company to raise funds today, unlike banks, which often do. This has occurred several times; for instance, Golar raised $100 million in December 2020 (∼10% dilution) after banks pressured it, even though the company was already under control. Be aware that Golar's stock price tripled over the next two years, clearly indicating that the capital raise was unnecessary. Similarly, Kosmos has achieved control over its operations through GTA and Ghana, which are performing above expectations. The company also hedged effectively for the second half of 2026 and 2027, securing high free cash flow that will significantly reduce its leverage. Although I believe the raise was unnecessary, the dilution isn't significant and doesn’t harm the investment case. Even with the greenshoe option (standard in all brokered equity issuances), the dilution remains minor and it only slightly lowers the long-term target price. However, it helps mitigate downside risk if oil prices fall back to $60 or below. This move reduces the company's risk and could attract institutional investors who previously stayed away due to the weak balance sheet. Starting with nearly $3 billion in net debt, I believe that through the EG sale, this equity raise, and free cash flow, they could reduce net debt by almost one-third by the end of the year — potentially driving the stock's valuation higher rather than trading like a distressed company. Understanding that they couldn't control the equity issuance movement was not something they could control (better now than when it was trading at very depressed levels), perhaps my only surprise is the large discount. I would have expected a smaller discount compared to the last price, given the current outlook. They could have put in more effort to show that the company's 2025 numbers are significantly different from today's numbers, making it more convincing to investors involved in this capital raise. Overall, as in other cases, I think the stock might take time to absorb this equity raise, particularly with the greenshoe active, but then, it will definitely trade higher due to an improved balance sheet and better FCF generation outlook. All else equal, I'd be surprised if the stock trades below the price issuance level.