Samson Resources is the latest in the parade of leveraged exploration
and production (E&P) companies unable to overcome challenges from the
weak natural gas and oil pricing without restructuring, according to
Fitch Ratings. Last night's bankruptcy filing is aimed at reducing net
debt that totaled approximately $4 billion at March 31. The capital
structure became unsustainable relative to cash flows in the face of the
significant drop in commodity prices.
Samson's filing drives Fitch's trailing 12-month (TTM) high-yield bond
default rate for the energy sector to nearly 5% and the E&P subsector to
8.5%, assuming no additional defaults this month. The bankruptcy comes
on the heels of Hercules Offshore's filing ($1.2 billion of outstanding
bonds) on August 13. There have been six energy defaults in the past six
weeks, including second distressed debt exchanges for SandRidge Energy
and Halcon Resources. The total TTM E&P sector default volume was $10.4
billion, more than the annual amount tallied during each of the past
five years, according to Fitch Ratings High Yield Default Index.
The pre-arranged bankruptcy filing was the next step in Samson's
restructuring after gaining support for a proposed restructuring plan
from more than 68% of second lien lenders. The plan contemplates a
debt-to-equity conversion of the second lien loan.
The restructuring would significantly deleverage Samson's balance sheet
and provide the company with at least $450 million of new capital.
Rights offerings will be made to existing second lien lenders and
backstop parties to raise $125 million of new second lien debt and $350
million of new common stock. The second lien lenders and backstop
parties will gain control of the new common equity. The $1 billion
second lien loan was trading at $0.275 on the dollar as of Wednesday,
Sept. 16, which provides an indicator of rough recovery value.
The disclosure statement indicates an estimated mid-point enterprise
value of $1.3 billion. First lien asset-based lender (ABL) claims
estimated at $942 million would receive 100% recovery under the proposed
plan in a combination of cash and a new exit ABL facility of up to $750
million (with an initial borrowing base of $650 million).
Recovery on the $2.25 billion of unsecured bonds at the bottom of the
capital stack would be considerably worse than the second lien debt.
Unsecured debtholders and other unsecured claims would receive 1% of the
new common stock in distributions if they vote to accept the plan,
essentially wiping out their investment. The unsecured bonds were bid at
$0.00375 on the dollar on Wednesday, indicating that poor unsecured debt
recovery was widely expected in the high-yield market.
Samson is a fracking company that primarily produces natural gas plus
some oil. The balance sheet became leveraged at the time of acquisition
by a consortium of private equity investors led by KKR in 2011. Natural
gas prices have been depressed for years as a result of strong shale gas
production. The plunge in oil prices beginning in late 2014 compounded
challenges. Management has been pursuing operational restructuring
efforts including laying off 30% of the workforce, cutting capex and
selling assets to improve negative cash flows while negotiating with
creditors on the plan.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include
hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com.
All opinions expressed are those of Fitch Ratings.
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View source version on businesswire.com: http://www.businesswire.com/news/home/20150917005900/en/
Copyright Business Wire 2015
Source: Business Wire
(September 17, 2015 - 10:11 AM EDT)
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