This will be extremely short because I don't know a ton about the company's business prospects, but see it as a trade opportunitiy. This morning Mammoth announced it has settled an outstanding legal matter for $188.4mm in cash, and yet the stock is up just $50mm in market cap. The PR is pasted below because i don't see an 8K yet. There's a writeup from 2023 that provides some background to the PREPA matter and the business.
Total Settlement Proceeds Expected to be Approximately $188 Million
OKLAHOMA CITY, July 22, 2024 /PRNewswire/ -- Cobra Acquisitions LLC ("Cobra"), a wholly owned subsidiary of Mammoth Energy Services, Inc., ("Mammoth" or the "Company") (NASDAQ: TUSK) today announced that it has entered into a release and settlement agreement with the Puerto Rico Electric Power Authority ("PREPA") and the Financial Oversight and Management Board for Puerto Rico, in its capacity as Title III representative for PREPA ("FOMB"), to settle all outstanding matters between Cobra and PREPA (the "Settlement Agreement").
Arty Straehla, Chief Executive Officer, commented, "We are pleased to have reached this resolution with PREPA and look forward to receiving the money for work we concluded over five years ago. We plan to use a portion of the $188.4 million in settlement proceeds to pay off our term credit facility, which had a balance of approximately $49.3 million as of June 30, 2024. The remaining amount of approximately $139.1 million will be cash on our balance sheet to be used to invest back into our business and for general corporate purposes."
Cobra and PREPA previously entered into two agreements to aid in the restoration and reconstruction of Puerto Rico's power grid in response to damage caused by Hurricane Maria in 2017. PREPA is currently subject to bankruptcy proceedings, which were filed in July 2017 and are currently pending in the United States District Court for the District of Puerto Rico (the "Title III Court"). As a result, PREPA's ability to meet its payment obligations under the above-referenced agreements is largely dependent upon funding from the Federal Emergency Management Agency ("FEMA") or other sources. Since September 30, 2019, Mammoth has been pursuing litigation in the Title III Court and other dispute resolution efforts seeking recovery of the amounts owed to Cobra by PREPA for restoration services in Puerto Rico, which proceedings are discussed in more detail in Mammoth's filings with the Securities and Exchange Commission (the "SEC"). As of June 30, 2024, Cobra had remaining receivables due from PREPA totaling approximately $359.1 million in relation to these agreements. PREPA is currently holding approximately $18.4 million in funds (the "Withheld FEMA Funds") received from FEMA for purported garnishments in this amount asserted by three Puerto Rican municipalities (the "Specified Municipalities") for certain municipal tax claims discussed in Mammoth's filings with the SEC and for which Cobra disputes any valid garnishment.
Under the terms of the Settlement Agreement, Cobra will have an allowed administrative expense claim against PREPA of $170.0 million (plus the $18.4 million in the Withheld FEMA Funds). Cobra's allowed claim will be paid through three installments: (i) $150.0 million on the later of (A) ten business days following approval of the Settlement Agreement by the Title III Court and (B) August 31, 2024; (ii) $20.0 million within seven days following the effective date of PREPA's plan of adjustment; and (iii) $18.4 million in the Withheld FEMA Funds within either (A) ten business days after the deadline for appealing the entry of the settlement order by the Title III Court under the applicable bankruptcy rules of procedure if no such appeal is filed, or (B) if the provisions of the settlement order allowing PREPA to release the Withheld FEMA Funds to Cobra without retaining any liability to the Specified Municipalities are appealed by the Specified Municipalities, within ten business days of the filing of the notice of such appeal.
The Settlement Agreement was approved by the Company's Board of Directors on July 22, 2024, and was also approved by the PREPA Board and by the FOMB. The Settlement Agreement remains subject to approval by the Title III Court, which is expected to hear the motion relating to the Settlement Agreement at either a non-omnibus hearing to be held in August of 2024 or at the next omnibus hearing to be held on September 18, 2024.
As a result of the Settlement Agreement, the Company will record a non-cash, pre-tax charge of approximately $170.7 million in the second quarter of 2024 to reduce its accounts receivable balance from PREPA to the amount expected to be received from the Settlement Agreement.
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Reaction to a total deleveraging event.