Swift Energy Co.'s Dec. 31 chapter 11 filing adds to the growing wave of
energy defaults and is representative of continued oil patch challenges,
according to Fitch Ratings.
Swift's bankruptcy filing, affecting approximately $1.18 billion of
debt, coincided with the expiration of a 30-day grace period for a
missed interest payment at the start of the month. Liquidity problems
were driven by persistently weak oil and gas prices that led to
plummeting cash flows, borrowing base reductions and an inability to
raise new capital or sell assets.
The December trailing 12-month energy sector high yield bond default
rate stood at 7.2% with the addition of Swift's filing. Fitch has an 11%
energy sector default rate forecast for 2016. The beleaguered energy
sector is the largest in the US high yield index comprising about 17% of
Swift had been in ongoing talks with senior noteholders regarding a
restructuring of its balance sheet and reached a restructuring support
agreement with bondholders on Dec. 31 that is based on a bankruptcy
filing and reorganization as a going concern. The proposed
reorganization plan, subject to claim holder and court approval, calls
for all senior notes to convert to 96% of the new common equity and
existing equity holders to retain 4% ownership of the new stock under
the plan. The company intends to continue normal operations throughout
the bankruptcy and to make all royalty and employee payments.
At year-end 2015, Swift's three unsecured bond debt issues that
collectively totaled $875 million had an average bid of $0.07, which
portends poor recoveries absent significant improvement in forward
commodity prices before the reorganization date that would drive up the
new equity value. The preliminary disclosure statement does not include
the estimated recovery rate for the noteholder claims or a fundamental
reorganization equity valuation.
The draft disclosure statement provides full recoveries to holders of
the $330 million of loans outstanding under the well-secured asset-based
loan (ABL) facility. As reserve values and market prices declined, the
ABL lender group reduced the borrowing base twice in 2015 to $330
million from $375 million in the Fall reset. Covenants were also revised
to provide some interest coverage and secured leverage ratio
flexibility. In the prior semi-annual lender review, the facility's
borrowing base was reduced to $375 million from $418 million. The
disclosure statement also provides 100% for an estimated $50 million of
Swift's EBITDA declined 73% to approximately $79 million for the first
nine months of 2015 from $290 million during the same period in 2014.
Significant interest burdens and capital spending compounded the low
commodity price environment. An approaching $250 million unsecured debt
maturity in June 2017 was another problem given the distressed trading
price of the unsecured bonds of $0.07 and a lack of market access.
Throughout 2015, Swift attempted to close several strategic transactions
to improve their capital structure and liquidity position. However,
traditional credit transactions, drillco transactions with private
equity (cash to drill in exchange for a share of production) and asset
divestiture transactions were either unavailable or available on highly
unfavorable terms because of the decline in oil and natural gas prices.
Swift attempted to launch a $640 million first lien term loan B in June
2015 to pay down ABL borrowings and for other cash needs but was pulled
due to unfavorable market conditions. In August, NYSE notified the
company that it no longer met minimum standards for listing as the stock
price fell below $1 for 30 consecutive days and would be delisted in six
months if the noncompliance was not remedied.
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/20160105006383/en/
Copyright Business Wire 2016
Source: Business Wire
(January 5, 2016 - 12:22 PM EST)
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