"Bonanza Creek Energy Announces Agreement on Comprehensive Deleveraging and Recapitalization" $BCEI

• Eliminate more than $850 million of principal, accrued interest and prepayment premiums in respect of the Senior Notes.  In exchange, approximately 95.5% of reorganized Bonanza Creek’s equity as of the effective date of the Plan (the “Effective Date”) (subject to dilution by a rights offering for new equity, a management incentive plan, and warrants for existing equity holders) and the opportunity to participate in an equity rights offering that will raise $200 million of new capital will be made available to holders of general unsecured claims against the Company as provided for in the Plan. This new capital commitment will be backstopped pursuant to an agreement to be entered into by certain Supporting Noteholders, subject to approval by the Bankruptcy Court.  Bonanza Creek anticipates emerging from chapter 11 with no funded debt and has sufficient liquidity to operate during the case.
• Restructure Bonanza Creek’s crude oil purchase and sale agreement with NGL on more favorable terms to the Company.
• Pay all customer, employee, royalty and working interest obligations in full in the ordinary course.
• Provide the Company’s existing shareholders, in exchange for the releases by such shareholders of the Released Parties (as defined in the Plan), with consideration in the form of 4.5% of reorganized Bonanza Creek’s equity on the Effective Date (subject to dilution by a rights offering for new equity, a management incentive plan, and warrants for existing equity holders) and 3-year warrants to acquire up to 7.5% of equity in reorganized Bonanza Creek.
• Subject to approval by Bonanza Creek’s board of directors, the Company anticipates filing voluntary petitions for relief under chapter 11 in the Bankruptcy Court by January 5, 2017.  Subject to Bankruptcy Court approval of the Plan and the satisfaction of certain conditions to the Plan and related transactions, the Company expects to consummate the Plan and emerge from chapter 11 before the end of the first quarter of 2017. 

Potential Catalyst for Bonanza Creek $BCEI

Bonanza Creek will have an interest payment due February 1, 2017 on its $300 million of 5.75% unsecured notes. That will be $8,625,000 of cash that they may decide they'd rather not part with.

Bonanza Creek Energy Warnings in 10-Q $BCEI

Since the first quarter of 2016, the Company’s liquidity outlook has deteriorated due to the Company's inability to sell assets given current market conditions and counterparty concerns about the Company's liquidity and current capital structure, borrowing base reductions that have occurred during 2016, continuation of depressed commodity prices and the inability to access the debt and capital markets. In addition, the Company’s senior secured revolving credit agreement (the “revolving credit facility”) is subject to scheduled redeterminations of its borrowing base, semi-annually, as early as April and October of each year, based primarily on reserve report values using lender commodity price expectations at such time as well as other factors within the discretion of the lenders that are party to the revolving credit facility.

As a result of these and other factors, the following issues have adversely impacted the Company’s ability to continue as a going concern:

*the Company’s ability to comply with financial covenants and ratios in its revolving credit facility and indentures has been affected by continued low commodity prices. Among other things, the Company is required under its revolving credit facility to maintain a minimum interest coverage ratio (the “minimum interest coverage ratio”) that must exceed 2.50 to 1.00. Absent a waiver, amendment or forbearance agreement, failure to meet these covenants and ratios would result in an Event of Default (as defined in the revolving credit agreement) and, to the extent the applicable lenders so elect, an acceleration of the Company’s existing indebtedness, causing such debt of $229.3 million, as of September 30, 2016, to be immediately due and payable. Based on the Company's financial results through the third quarter of 2016, it is no longer in compliance with its minimum interest coverage ratio requirement. The minimum interest coverage ratio is calculated by dividing trailing twelve-month EBITDAX by trailing twelve-month interest expense. If a waiver, amendment or forbearance agreement is not obtained, the applicable credit facility lenders could give notice of acceleration as a result of this non-compliance. The Company does not currently have adequate liquidity to repay all of its outstanding debt in full if such debt were accelerated;

*because the revolving credit facility borrowing base was redetermined in May 2016 to $200.0 million, the Company was overdrawn by $88.0 million and has been making mandatory monthly repayments of approximately $14.7 million. The borrowing base was further reduced on October 31, 2016 to $150.0 million, which is less than the current amount drawn. Under the terms of the credit agreement, the Company has a 20-day period from the date of redetermination to inform the bank group of its intended method to cure its deficiency. Please refer to Note 5 - Long-Term Debt for additional discussion on the Company's available options to cure its borrowing base deficiency. Depending on its election to cure the deficiency, the Company may not have sufficient cash on hand to be able to make the mandatory repayments associated with curing the deficiency at the time they are due;

*the Company’s ability to make interest payments as they become due and repay indebtedness upon maturities (whether under existing terms or as a result of acceleration) is impacted by the Company’s liquidity. As of September 30, 2016, the Company had a $29.3 million borrowing base deficiency under its revolving credit facility and $133.4 million in cash and cash equivalents. As a result of the October 31, 2016 redetermination, the Company's borrowing base deficiency is $64.7 million, as of the date of filing;

*the Company has two purchase and transportation agreements to deliver fixed determinable quantities of crude oil. The first agreement went into effect during the second quarter of 2015 for 12,580 barrels per day over an initial five year term. Based on current production estimates, assuming no future drilling and completion activity, the Company anticipates shortfalls in delivering the minimum volume commitments throughout the remainder of 2016. The Company has incurred $1.5 million in minimum volume commitment deficiency payments as of September 30, 2016. Under the current terms of the contract, the anticipated shortfall in delivering the minimum volume commitments could result in potential deficiency payments of $1.7 million for the remainder of 2016 and an aggregate $44.8 million in deficiency payments for 2017 through April 2020, when the agreement expires. In accordance with an adequate assurance of performance provision contained in the contract, the counterparty withheld $5.0 million from the Company's revenue payment during the third quarter of 2016. This payment is being held in a segregated account and is reflected in the other noncurrent assets line item in the accompanying balance sheets. The second agreement became effective on November 1, 2016 for 15,000 barrels per day over an initial seven year term. Based on current production estimates, assuming no future drilling and completion activity, and not designating any barrels to this commitment until May 2020. Under the current terms of the contract, the anticipated shortfall in delivering the minimum volume commitments could result in potential deficiency payments of $4.8 million in 2016 and an aggregate $165.2 million in deficiency payments for 2017 through October 2023, when the agreement expires. The actual amount of deficiency payments could vary on both contracts depending on the outcome of the Company's ability to renegotiate and execute on one or more of its current liquidity strategies; and

Bonanza Creek Energy Makes Its Interest Payment $BCEI

On November 8, 2016, the Company made the bond interest payment on its $500 million issue of 6.75% senior unsecured notes to the indenture trustee, which was due on October 15, 2016

Bonanza Creek Energy Receives Another Borrowing Base Deficiency Notice $BCEI

Link:

The fall 2016 semi-annual borrowing base redetermination under the Credit Agreement, dated March 29, 2011 (as amended, the “Credit Agreement”) of Bonanza Creek Energy, Inc. (the “Company”) was completed on October 31, 2016. (Capitalized terms used herein shall be deemed to have the meaning ascribed to them in the Credit Agreement.) The Borrowing Base under the Credit Agreement was reduced from $200 million to $150 million, which amount will remain in effect until it is redetermined or adjusted in accordance with the Credit Agreement and will continue to be secured by certain of the Company’s Oil and Gas Properties.

As of October 31, 2016, the Company had approximately $214.7 million in borrowings outstanding under the Credit Agreement and no outstanding letters of credit. As a result of this October 2016 redetermination and after giving effect to the last monthly installment of approximately $14.6 million owed as a result of the Borrowing Base Deficiency which existed following the Company’s semi-annual borrowing base redetermination on May 20, 2016, the Company will have a Borrowing Base Deficiency of approximately $50 million (the “Fall Deficiency”). The Company received notice of the Fall Deficiency on October 31, 2016 (the “Deficiency Notice Date”).

Under the terms of the Credit Agreement, the Company must pursue one of the following options to address the Borrowing Base Deficiency: (A) within 20 days after the Deficiency Notice Date, deliver to the Administrative Agent written notice of the Company’s election to repay Advances such that the Borrowing Base Deficiency is cured within 30 days after the Deficiency Notice Date; (B) pledge, within 30 days after the Deficiency Notice Date, additional Oil and Gas Properties acceptable to the Lenders, which the Lenders deem sufficient in their sole discretion to eliminate the Borrowing Base Deficiency; (C) within 20 days after the Deficiency Notice Date, deliver to the Administrative Agent written notice of the Company’s election to repay Advances in six monthly installments equal to one-sixth of the Borrowing Base Deficiency, with the first such installment due 30 days after the Deficiency Notice Date and each following installment due 30 days after the preceding installment; or (D) within 20 days after the Deficiency Notice Date, deliver to the Administrative Agent written notice of the Company’s election to combine the options in clause (B) and (C) above, and indicating the amount to be repaid in installments and the amount to be provided as additional Collateral.

Bonanza Creek Energy Missing Interest Payment

While it has sufficient cash on hand to make the payment, Bonanza Creek Energy, Inc. (the “Company”) has elected not to make the interest payment due on October 15, 2016 with respect to its $500 million 6.75% senior notes due in 2021 (the “2021 Notes”). By not making the interest payment, the Company will enter into a 30-day grace period during which it retains the right to pay the interest due to the holders of the 2021 Notes and thereby remain within compliance of the bond indenture. The 30-day grace period also applies to any potential cross-default under the Company’s credit facility with respect to the bond interest payment.

Bonanza Creek Energy Bonds Yielding 30%

There's $500 million outstanding of the 6.75% notes due 2021. The next coupon is on October 15, about three weeks away, and it will be for almost $17 million.

Given that they used the 30 day grace period on the ~$8.6 million unsecured interest payment on August 1st, it seems like there's a decent chance that they will default on this next payment.

Bonanza Creek Energy Elects to Pay Interest on Its Senior Unsecured Notes

"[T]he Company has elected to pay interest on its senior unsecured notes due 2023. Interest on these notes was due on August 1, 2016, at which time the Company elected to not make the interest payment and enter into a 30-day grace period. By paying the interest within the 30-day grace period, the Company remains in compliance with its senior unsecured notes due 2023."

There's another (bigger) interest payment due on October 15th. The bonds are both still trading in the mid 40s.

Distressed Watch: Bonanza Creek Energy

The 6.75% note (due 4/15/2021) trades at 43, ytm of 30%. The 5.75% note (due 2/1/2023) trades at about the same dollar price, ytm of 24%. As you can see the yield curve is inverted, and in fact the notes seem to be trading at estimated recovery value. This makes sense since the company missed its August 1st interest payment and before that had hired restructuring professionals.

Those two unsecured notes total $800 million at face value. The company also had $273 million drawn on a line of credit at the end of the second quarter.

Compare the total debt of $1.073 billion with the value of the Company's reserves. The PV-10 at the end of 2015 (using $50.28 per Bbl WTI and $2.59 per MMBTU HH) was only $329 million, down from $1.1 billion at the end of 2014.

The market cap is down to $50 million from $144 million the first time we mentioned the company.

Going concern uncertainty from 10-Q:

• Since the first quarter of 2016, the Company’s liquidity outlook has deteriorated due to the borrowing base reduction that occurred in May 2016, the inability to sell assets given current market conditions and counterparty concerns about the Company's liquidity and current capital structure, continuation of depressed commodity prices and the possible inability to access the debt and capital markets.
• While the Company is currently in compliance, based on the Company’s estimates and expectations for commodity prices in 2016, the Company does not expect to remain in compliance with all of the restrictive covenants contained in its revolving credit facility throughout 2016 unless those requirements are waived or amended.

Production will probably be falling significantly:

• We estimate capital expenditures for the remainder of 2016 to range from $7.5 million to $17.5 million. We ceased our drilling program at the end of the first quarter of 2016 and do not have any active drilling planned for the remainder of 2016. Consequently our production will decline in line with our normal decline curves, and we will experience further reductions in revenues, profitability and cash flows.

The crude oil volumes fell 23% between Q2 2015 and Q2 2016! During the year ended 6/30/16, the company completed 67 wells. During the year ended 6/30/15, the company completed 145 wells. With drilling dropping to zero, production will probably plummet further.

The bonds do not seem like a good deal to me at 40 cents.

Bonanza Creek 8-K Filing

New 8-k filing on Friday:

In its August 1, 2016 press release, the Company provided disclosure related to covenants under the indentures governing the Company’s senior unsecured notes that limit the Company’s ability to incur additional indebtedness. Specifically, the incurrence by the Company (or any of the guarantors under the indentures) of additional indebtedness and letters of credit under the Company’s revolving credit facility in an aggregate principal amount at any one time outstanding is not to exceed the greater of (a) $300.0 million or (b) 35% of the Company's Adjusted Consolidated Net Tangible Assets (“ACNTA”) determined as of the date of the incurrence of such indebtedness. ACNTA is defined as the Company’s PV-10 value plus capitalized costs for unproved properties plus consolidated net working capital and other tangible assets. The Company reported in its August 1, 2016 press release that, at June 30, 2016, 35% of the Company’s ACNTA was equal to approximately $380 million.

The Company has since determined that an error was made in the computation of the ACNTA. The Company has determined that the correct value of 35% of the Company’s ACNTA at June 30, 2016 is approximately $323 million. No additional indebtedness was incurred based on the erroneous computation of ACNTA.

Bonanza Creek Energy Elects to Not Make Interest Payment on 5.75% Senior Unsecured Note $BCEI

While the operating assets continue to perform, our balance sheet and access to capital remain a major headwind. In an effort to enhance the liquidity position of the Company, in the first and second quarter of 2016 we targeted divestitures of both our RMI and MidCon assets. Although we received strong economic bids for both of these asset packages, conditions included in the bid proposals require that the Company improve its liquidity and its balance sheet. As a result, we have suspended the divestiture efforts to focus on other liquidity enhancing and debt restructuring options. To assist in evaluating all alternatives, we have retained (as previously announced) Perella Weinberg Partners as restructuring advisors and Davis Polk & Wardwell as legal advisors.

Debt and Liquidity

The Company has a $1.0 billion revolving credit facility, which was redetermined in May of 2016 to an approved borrowing base and commitment amount of $200 million. As of June 30, 2016, the Company had borrowings under its credit facility of $273.3 million and cash totaling $170.2 million. Upon redetermination of the Company's credit facility, its borrowings exceeded its borrowing base by $88 million. The Company has elected to pay this deficiency in six monthly installments as allowed under the terms of the credit facility agreement. During the quarter the Company paid off its remaining $12.0 million letter of credit and made its first credit facility deficiency payment of $14.7 million. The Company has subsequently paid its second deficiency payment of $14.7 million in July and has four remaining payments to be made on a monthly basis to remedy its credit facility deficiency. The Company's next redetermination is expected to happen in the fourth quarter of 2016.  As of June 30, 2016, the Company was in compliance with all financial covenants under its credit facility, with a senior secured debt to TTM EBITDAX ratio of 1.5x, an interest coverage ratio of 3.2x, and a current ratio of 2.7x.

In addition to the credit facility, Bonanza Creek has two outstanding issues of unsecured high-yield bonds which consist of $500 million of 6.75% senior notes due in 2021 and $300 million of 5.75% senior notes due in 2023. The Company is subject to certain covenants under the respective indentures governing the senior notes that, among other things, limit its ability to incur additional indebtedness. Specifically, the incurrence by the Company (or any of the guarantors under the indentures) of additional indebtedness and letters of credit under the revolving credit facility in an aggregate principal amount at any one time outstanding is not to exceed the greater of (a) $300.0 million or (b) 35% of the Company's Adjusted Consolidated Net Tangible Assets (“ACNTA”) determined as of the date of the incurrence of such indebtedness. ACNTA is defined as the Company's PV-10 value plus capitalized costs for unproved properties plus consolidated net working capital and other tangible assets.  At June 30, 2016, 35% of the Company’s ACNTA was equal to approximately $380 million.

While the Company currently has sufficient cash on hand to make its upcoming bond interest payment, it has made the election to not pay the interest payment for its $300 million 5.75% senior unsecured notes, which was due on August 1, 2016. By not paying the interest due, the Company has entered into a 30-day grace period during which it retains the right to pay the interest due to the holders of its 5.75% notes and thereby remain within compliance of the bond indenture. The 30-day grace period also applies to any potential cross-default under the Company's credit facility with respect to the bond interest payment.

Bonanza Creek Energy, Inc. Hires Restructuring Advisor $BCEI

From 8-K filing:

Bonanza Creek Energy, Inc. (the “Company”) has retained Perella Weinberg Partners to advise the Company and assist in analyzing and evaluating financial and transactional alternatives, including restructuring options. Davis Polk & Wardwell LLP will continue to provide ongoing corporate and finance representation, including in connection with the above activities.

The BCEI notes last traded at a YTM of 29%.

Bonanza Creek Energy Borrowing Base Redetermination

The spring 2016 semi-annual borrowing base redetermination of the Credit Agreement, dated March 29, 2011 (as amended, the “Credit Agreement”) of Bonanza Creek Energy, Inc. (the “Company”) was completed on May 20, 2016. (Capitalized terms used herein shall be deemed to have the meaning ascribed to them in the Credit Agreement.) The Borrowing Base under the Credit Agreement was reduced from $475 million to $200 million, which amount will remain in effect until it is redetermined or adjusted in accordance with the Credit Agreement and will continue to be secured by certain of the Company’s Oil and Gas Properties.

As of May 20, 2016, the Company had $288 million in borrowings outstanding under the Credit Agreement and no outstanding letters of credit. As a result of this May 2016 redetermination, the Company now has a Borrowing Base Deficiency of $88 million. The Company received notice of this deficiency on May 20, 2016 (the “Deficiency Notice Date”). The Company is currently in compliance with all of the Credit Agreement’s financial and non-financial covenants.

Under the terms of the Credit Agreement, the Company must pursue one of the following options to address the Borrowing Base Deficiency: (A) within 20 days after the Deficiency Notice Date, deliver to the Administrative Agent written notice of the Company’s election to repay Advances such that the Borrowing Base Deficiency is cured within 30 days after the Deficiency Notice Date; (B) pledge, within 30 days after the Deficiency Notice Date, additional Oil and Gas Properties acceptable to the Lenders, which the Lenders deem sufficient in their sole discretion to eliminate the Borrowing Base Deficiency; (C) within 20 days after the Deficiency Notice Date, deliver to the Administrative Agent written notice of the Company’s election to repay Advances in six monthly installments equal to one-sixth of the Borrowing Base Deficiency, with the first such installment due 30 days after the Deficiency Notice Date and each following installment due 30 days after the preceding installment; or (D) within 20 days after the Deficiency Notice Date, deliver to the Administrative Agent written notice of the Company’s election to combine the options in clause (B) and (C) above, and indicating the amount to be repaid in installments and the amount to be provided as additional Collateral.

Potential Donut: Bonanza Creek Energy, Inc.

Small E&P: "Our operations are mainly focused in the Wattenberg Field in the Rocky Mountain region and in the Dorcheat Macedonia Field in the Mid-Continent region."

Market cap $144 million.

The 6.75% note (due 4/15/2021) trades at 40, ytm of 32%. The 5.75% note (due 2/1/2023) trades at about the same dollar price, ytm of 25%. As you can see the yield curve is inverted.

The enterprise value is approximately a billion dollars as of right now. 

The PV-10 at the end of 2015 (using $50.28 per Bbl WTI and $2.59 per MMBTU HH) was only $329 million, down from $1.1 billion at the end of 2014.

Documents

• 2015 Annual Report
• 8-K regarding borrowing base