Petrocapita August 7, 2012 Briefing - Rollover Risk World Tour 2015


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Rollover risk can be defined broadly as the possibility that a borrower cannot refinance maturing debt. If combined with insufficient funds/liquid assets on hand to fund the shortfall, the borrower will experience a liquidity problem and technically may be considered insolvent.

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Petrocapita August 7, 2012 Briefing - Rollover Risk World Tour 2015

  1. 1. Petrocapita UpdateAugust 7, 2012
  2. 2. Petrocapita UpdateROLLOVER RISK WORLD TOUR 2015Rollover risk can be defined broadly as the possibilitythat a borrower cannot refinance maturing debt.If combined with insufficient funds/liquid assetson hand to fund the shortfall, the borrower willexperience a liquidity problem and technically may beconsidered insolvent.Here is a concrete example of rollover risk that maybe unfolding right in front of us: Bloomberg estimatesthat the developed economies have $7.6 trillion ofdebt maturing in 2012 led by Japan ($3 trillion) andthe U.S. ($2.8 trillion) and more than $8 trillion mustbe financed when interest payments are included. By2015 it is estimated that half of the debt of the top 10global debtors ($15 trillion) will mature and must berolled. DEBT MATURING IN 2012 ($) Japan 3,000 billion US 2,783 billion Italy 428 billion France 367 billion Germany 285 billion Canada 221 billion Brazil 169 billion U.K. 165 billion China 121 billion India 57 billion Russia 13 billion 1
  3. 3. Petrocapita Update (continued) Sadly, as the political class has become aware of the CUMULATIVE DEBT MATURING OUT TO 2015 rollover issue, rather than take any productive steps to address their debt addiction, they have partnered100% with the central banks to attempt to keep interest By 2015, half of TOTAL outstanding debt 90% in the world’s top 10 debtor nations will rates suppressed for an extended period - hoping this 80% come due, which is more than $15 trillion will allow business as usual to continue. Politicians dollars of sovereign debt! want to continue to run deficits and central banks do 70% not want “too big to fail” financial institutions to suffer 60% losses on their loan portfolios. What both parties 50% have yet to learn is that you can control interest rates 40% or the purchasing power of money, but not both 30% indefinitely. I am confident that the law of unintended 20% consequences will be sure to provide that instruction 10% in due course. 0% 2012 2013 1014 2015 2016 2017 2018 2019 2020 2021 2022 2023+ USEFUL INFOSource: PFS Group Austerity Chooses You, You Don’t Choose Austerity - Media and Keynesiam nostrums that the insolvent sovereign borrowers of the world have a choiceConsidering that global GDP is estimated at $70 between austerity and a continuation of their debttrillion the magnitude of these numbers beg the binges are baffling to read to say the least. When youquestions of 1) how this will be financed and perhaps are bankrupt you do not choose austerity, it is forcedmore importantly 2) at what rates? upon you in one fashion or another.Other than the US bond market which seems well ZIRP is Old News - Watch out for NIRP - Yes ZIRPbid for now (at least by the Federal Reserve), private is now officially out of fashion. Pulling firmly into thelenders are retreating from peripheral markets at lead in the race to the bottom, the Danish Centralthe first hint of trouble. If this continues, either the Bank recently announced that it was implementingmonetary authorities will have to step in and monetise a Negative Interest Rates Policy on certain deposits.the maturing debts or interest rates will have to rise ZIRP is dead, long live NIRP.considerably from current historic lows. We areseeing the outcome of this process taking place on Bank of America - In the Long Run - Recent report bya relatively modest scale in Spain and Greece - what Bank of America on some long-run relationships andwill it look like when it goes global? trends. 2
  4. 4. Petrocapita Update (continued)North American Gas Prices in 2015 - Recovery to RECENT INTERVIEWS$5/mcf? - Further to our developing thesis of gettinglong shut-in North American NG reserves, First Marketwatch - Investing in FarmlandEnergy recently published a report saying the worst Money Morning - Why Jim Rogers is Investing infor the North American NG space was still in front Farmlandof it (next 12 months) but then rapid price recovery BNN Commodities Showwas expected as drilling investment is collapsing and Macleans - What’s the Use of Saving Moneymarginal operators are forced out of the market. Mises Institute Presentation - Myth versus Reality in the Global Economy 3
  5. 5. DISCLAIMER: The information, opinions, estimates, projections and other materials contained herein are provided as of the date hereof and are subject to change without notice. Some of the information, opinions, estimates, projections and other materials contained herein have been obtained from numerous sources and Petrocapita Income Trust (“PETROCAPITA”) and its affiliates make every effort to ensure that the contents hereof have been compiled or derived from sources believed to be reliable and to contain information and opinions which are accurate and complete. However, neither PETROCAPITA nor its affiliates have independently verified or make any representation or warranty, express or implied, in respect thereof, take no responsibility for any errors and omissions which maybe contained herein or accept any liability whatsoever for any loss arising from any use of or reliance on the information, opinions, estimates, projections and other materials contained herein whether relied upon by the recipient or user or any other third party (including, without limitation, any customer of the recipient or user). Information may be available to PETROCAPITA and/or its affiliates that is not reflected herein. The information, opinions, estimates, projections and other materials contained herein are not to be construed as an offer to sell, a solicitation for or an offer to buy, any products or services referenced herein (including, without limitation, any commodities, securities or other financial instruments), nor shall such information, opinions, estimates, projections and other materials be considered as investment advice or as a recommendation to enter into any transaction. Additional information is available by contacting PETROCAPITA or its relevant affiliate directly.#205, 120 Country Hills Landing NW Tel: +1.403.218.6506 www.petrocapita.comCalgary, AB T3K 5P3 Fax: +1.403.648.2776Canada