Fitch Downgrades Energy XXI Gulf Coast Inc. to 'D'
Fitch Ratings has downgraded Energy XXI LTD's (NYSE: EXXI) and Energy
XXI Gulf Coast's (EGC) Long-term IDR to 'D' following the company's
filing for bankruptcy protection under Chapter 11 of the U.S. bankruptcy
code.
A full list of rating actions follows this release.
KEY RATING DRIVERS
RESTRUCTURING SUPPORT AGREEMENT
On April 14, EXXI announced that it had entered into a restructuring
support agreement (RSA) with certain holders of the company's
second-lien notes. In order to implement the terms of the agreement,
EXXI voluntarily filed for Chapter 11 relief. Under the proposals
contained in the RSA, substantially all prepetition funded debt would be
eliminated, other than amounts related to the first-lien bank facility.
Second-lien holders would receive a pro rata share of 100% of equity in
the reorganized company, subject to dilution from equity amounts
attributable to a proposed long-term incentive plan for management.
Under the RSA, EGC, EPL Oil & Gas, and EXXI LTD unsecured claims would
receive a pro rata share of a proposed warrant package, provided they
vote to accept the plan of reorganization. Existing common and preferred
stock would be extinguished, with existing equity holders receiving no
consideration. The RSA contemplates that John Schiller would continue as
CEO of the reorganized company.
EXXI reported cash on hand of $180 million as of March 31, 2016. The
company expects operations to continue as usual during the
restructuring, and EXXI will manage their assets as
debtors-in-possession under the jurisdiction of the bankruptcy court.
UPDATED RECOVERY ANALYSIS
EXXI Gulf Coast recoveries are estimated as outstanding ('RR1'; 100%) at
the first-lien secured level, average ('RR4'; 31 to 50%) at the
second-lien secured level, and poor ('RR6'; 0%) at the unsecured level.
EXXI LTD debt and preferred stock is structurally subordinated to the
assets at EXXI Gulf Coast, and receives no recovery value in our
analysis ('RR6'; 0%).
KEY ASSUMPTIONS
Recovery values are based on estimated liquidation values of proved (1P)
oil and natural gas reserves. Fitch begins with a standard value of
$12.5/boe for an average producer, which is based on our long term price
deck ($65/bbl oil, $3.25/mcf natural gas). Fitch then makes adjustments
for location and quality, oil & gas mix, as well as adjustments related
to the recent decline in commodity prices.
RATING SENSITIVITIES
N/A
FULL LIST OF RATING ACTIONS
Energy XXI Gulf Coast Inc.
--Long-term Issuer Default Rating downgraded to 'D' from 'C';
--Senior secured first lien revolver affirmed at 'CCC/RR1';
--Senior secured second lien notes downgraded to 'C/RR4' from 'CCC-/RR2';
--Senior unsecured notes affirmed at 'C/RR6'.
Energy XXI LTD
--Long-term IDR downgraded to 'D' from 'C';
--Convertible notes affirmed at 'C/RR6';
--Convertible perpetual preferred affirmed at 'C/RR6'.
Summary of Financial Statement Adjustments - Fitch has made no material
adjustments that are not disclosed within the company's public filings.
Additional information is available on www.fitchratings.com.
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Recovery Ratings and Notching Criteria for Non-Financial Corporate
Issuers (pub. 05 Apr 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879564
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1002664
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1002664
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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