|
 Last year, at least 10 exploration and production companies,
including California Resources Corp <CRC.N>, managed to ease
financial pressure by persuading investors to accept some losses on
their bond holdings in return for new debt that often matures later
and offers better collateral.
Yet since prices tumbled further early this year, investors have
grown more worried that some firms may not survive the rout. They
see no point in accepting debt with potentially better collateral if
it could mean nothing once the firm hits the wall.
The deepening slump also means that producers need to offer more
attractive terms - higher interest payments and more collateral - to
win over investors and avoid the brutal equity wipeout that happens
in most bankruptcies.
"Investors are less desperate now since they've already taken a lot
of the pain," said Roopesh Shah, global chief of Goldman Sachs'
restructuring group.
"They have less downside they're trying to protect," he said. Shah
said debt exchanges were still viable, but needed to offer better
protection and potential gains for investors.
That is a tall order for producers, which must conserve cash to make
it through the price slump, and whose ability to issue new debt is
limited by provisions in bond documents that tie debt to commodity
prices.
Pennsylvania-based Eclipse Resources Corp <ECR.N> that acquires and
develops oil and natural gas properties in Ohio, canceled a debt
exchange launched in January. Denbury Resources Inc <DNR.N>, a Texas
company with operations in the Rocky Mountains and along the Gulf of
Mexico Coast, pulled a debt swap even after sweetening the deal for
investors.
"Ultimately we terminated because it wasn't attractive enough for
us," said Denbury spokesman Ross Campbell, adding that the company
is still deciding whether to try another swap. Eclipse declined to
comment.
Chesapeake Energy Corp's <CHK.N> and Vanguard Natural Resources
LLC's <VNR.O> exchange offers saw limited demand. Only about 20
percent of holders of Chesapeake bonds due in 2017 and 2018 took up
the offer, even after Chesapeake doubled the amount of new debt it
planned to issue. About 30 percent of eligible potential bondholders
took part in Vanguard's exchange.
The companies did not respond to requests for comment.
LOOMING BANKRUPTCIES
With survival options dwindling, Roughly a third of U.S. oil
producers, or 175 firms, is at risk of slipping into bankruptcy this
year, according to a study by Deloitte, the auditing and consulting
firm. About 40 hit the wall last year.
The deepening downturn has jeopardized other survival strategies,
including selling assets to raise cash or buying back debt.
[to top of second column] |
When California Resources, a spin-off of Occidental Petroleum Corp,
launched its debt exchange in November, it offered creditors 80
percent of face value - a premium of 11 to 23 percent - plus a hefty
bump in interest rate. The company, which declined to comment, more
than doubled the total amount of old debt investors could trade in.
In its canceled exchange, Eclipse Resources offered investors half
of face value for bonds that had already cratered to 30 cents on the
dollar, and a virtually unchanged coupon on the proposed new bonds.
Some swaps turned out to be disastrous for debtholders, which may be
deterring others. New debt issued by Halcon Resources Corp <HK.N> in
an exchange now trades below 15 cents on the dollar, after the
exploration and production company completed another swap that
offered investors higher security. The new California Resources debt
has also plummeted, to close to 20 cents on the dollar.
As the crisis ripples through the energy sector, larger companies
will also consider debt exchanges, until now mainly pursued by small
producers, bankers said.
At least two firms are now seeking debt swaps. Rex Energy Corp
offers its creditors higher coupon and a second lien debt that comes
ahead of unsecured debt plus equity for their holdings. Alta Mesa
Holdings LP [ALMEH.UL] proposes to swap bonds for secured term
loans. Rex declined to comment, and Alta Mesa did not respond to
requests for comment.
Swaps are not a silver bullet for issuers either. Linn Energy LLC,
whose bondholders agreed to an exchange last year, drew down a
revolving credit line this year, a sign of potential trouble ahead.
The company did not immediately return a request for comment.
(Reporting by Jessica DiNapoli; Editing by Carmel Crimmins and
Tomasz Janowski)
[© 2016 Thomson Reuters. All rights
reserved.] Copyright 2016 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed. |
