Einhorn's Greenlight Doubles Down on Falling Consol -- Again

  • Purchases total return swaps on 2.25 million more shares
  • Greenlight initiated position last year at $38.88 a share

David Einhorn’s Greenlight Capital has increased his exposure yet again to Consol Energy Inc., a coal and natural gas producer that’s plummeted 75 percent this year.

Though the company has been one of hedge fund’s worst-performing positions this year, Greenlight bought more exposure through total return swaps on Nov. 3 and Nov. 4, according to a filing with the U.S. Securities and Exchange Commission. The agreements would allow Greenlight to profit from an increase in Consol’s share price without directly holding the stock.

Greenlight purchased swaps on 2.25 million shares of Consol, aside from the 29.6 million it already owns, according to the agreement. In addition to paying a broker a fee to initiate the swap, Greenlight would also have to pay if Consol shares fall below a certain price, in this case $8.16 or $8.19.

Consol fell 4.3 percent to $8.09 at 1:20 p.m. in New York, paring this week’s gain to 21 percent.

Greenlight first established a position in the company during the third quarter of 2014 at an average price of $38.88 a share, it told investors in a letter last November. The shares have dropped 79 percent since then.

Steady Increase

The investment firm has steadily increased its exposure even as shares of Consol have declined, and has become the Canonsburg, Pennsylvania-based company’s second-largest holder. Greenlight’s main hedge fund declined 16 percent in 2015 through October, according to a performance update, driven by losses at Consol, Micron Technology Inc. and SunEdison Inc.

Einhorn has reaffirmed his conviction in Consol, which has been battered by an oversupply of natural gas in the Appalachia region. Analysts aren’t evaluating the company’s prospects properly, he wrote in an Oct. 21 letter to investors that was obtained by Bloomberg. Cost-cutting and drilling efficiencies should help the company break even or make money going forward, he said.

"There are very few midsize energy companies achieving similar success. And yet, CNX trades as if it is at the cusp of financial distress," he wrote in the letter. "Of course, we wish we were entering the position now rather than at the higher prices we paid."

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