Cobalt International Energy ($CIEIQ) Bankruptcy Update

As expected, the newly published plan of reorganization for Cobalt (one of the Distressed Watch companies) provides for no recovery for equity.

Class 10 – Interests in Cobalt
a.Classification: Class 10 consists of all Interests in the Cobalt.
b.Treatment: On the Effective Date, existing Interests in Cobalt shall be deemed canceled and extinguished, and shall be of no further force and effect, whether surrendered for cancelation or otherwise, and there shall be no distribution to holders of Interests in Cobalt on account of such Interests.

Regarding the timing of the case:

Pursuant to the Bid Procedures Motion, the Debtors currently expect that 5:00 p.m. (prevailing Central Time) on February 19, 2018 will be the final bid deadline for all Sale Transactions and an Auction, if needed, will be held at 10:00 a.m. (prevailing Central Time) on February 27, 2018.

Confirmation Hearing Date
March 30, 2018, at 9:30 a.m., prevailing Central Time

So the case may be moving pretty quickly.

The unsecured debt is trading for ~37 cents today. How's the stock doing? Up big, of course. Why wouldn't you want to own equity junior to the impaired debt?

Cobalt International Energy, Inc. Commences Chapter 11 Cases to Facilitate Restructuring $CIE

Announced this morning:

Cobalt International Energy, Inc. today announced that it and certain of its U.S. affiliates filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the "Chapter 11 Cases"). Cobalt expects to conduct business in the ordinary course, and its cash on hand is expected to provide Cobalt with adequate liquidity to fund its operations during the restructuring process. The Chapter 11 Cases are expected to facilitate the restructuring process and the proposed sale of Cobalt’s assets.

That went from the distressed debt watch to bankrupt pretty quickly. Here is the United States Bankruptcy Court, Southern District of Texas docket for the case.

From the first day motions, a comment on timing:

To potentially avoid these significant capital expenditures and mitigate the risk that they lose any of their leases, the Debtors seek to complete the final, in-court stage of their marketing efforts and obtain approval of a sale of their assets by no later than Friday, March 23, 2018. [pdf]

Effective December 14, 2017, the Company's common stock is expected to begin trading on the OTC Pink marketplace under the symbol "CIEI".

The 2019 debt has been trading today at 10-11 cents.

Distressed Debt Watch

• Exco Resources (XCO, EDGAR) bond due Sept 2018 trading at 10 cents, YTM over 650%. 
• Cobalt International Energy (CIE, EDGAR) bond due Dec 2019 trading at 11 cents, YTM ~160%.
• Iconix Brand Group (ICON, EDGAR) bond due March 2018 trading at 85 cents, YTM of 63%.
• Bon Ton Stores (BONT, EDGAR) bond due June 2021 trading at 30 cents, YTM over 50%.
• Egalet Corp (EGLT, EDGAR) bond due April 2020 trading at 45 cents, YTM over 45%.
• GNC Holdings (GNC, EDGAR) bond due August 2020 trading at 59 cents, YTM of 22%.
• Frontier Communications (FTR, EDGAR) bond due April 2022 trading at 75 cents, YTM of 17%.

Distressed Debt Watch

• Cobalt International Energy (CIE, EDGAR) bond due Dec 2019 trading at 8 cents, YTM over 180%. Latest news: "The Company has elected not to make the interest payment of approximately $12.3 million due on November 15, 2017 with respect to its outstanding 3.125% Convertible Senior Notes due 2024 (the “2024 Notes”). The indenture governing the 2024 Notes permits the Company a 30-day grace period to make the interest payment. If the Company fails to make the interest payment within the grace period an event of default will result, and the trustee or noteholders holding at least 25% in the aggregate outstanding principal amount of 2024 Notes may elect to accelerate the 2024 Notes causing them to be immediately due and payable." [Going Concern Warning]
• Exco Resources (XCO, EDGAR) bond due Sept 2018 trading at 12 cents, YTM almost 600%. [Going Concern Warning]
• Bon Ton Stores (BONT, EDGAR) bond due June 2021 trading at 30 cents, YTM over 50%.
• Egalet Corp (EGLT, EDGAR) bond due April 2020 trading at 45 cents, YTM over 45%.
• Frontier Communications (FTR, EDGAR) bond due April 2022 trading at 75 cents, YTM of 17%.
• Iconix Brand Group (ICON, EDGAR) bond due March 2018 trading at 84 cents, YTM of 61%.
• GNC Holdings (GNC, EDGAR) bond due August 2020 trading at 59 cents, YTM of 22%.

CIE Conference Call

Link:

All discretionary spend is being eliminated. We have interest payments due in our bonds in November and December that we are mindful of. Given this, we felt it appropriate to engage these advisers to assist us in analyzing all of our alternatives, including a restructuring or reorganization under Chapter 11 of the Bankruptcy Code. As part of Houlihan's engagement, they have recently initiated constructive conversations with our bondholders. That dialogue continues.

YTM on bonds is now 180%.

Cobalt International Energy "Going Concern" Warning

This was in their September 10-Q filing:

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

As of September 30, 2017, we had $547.3 million in cash and cash equivalents, restricted cash, short–term investments and long–term restricted cash and $2,840.8 million in aggregate principal amount of long–term debt outstanding. We have interest payments of $167.0 million due on our outstanding long–term debt in the next twelve months, including an interest payment of $12.3 million due on November 15, 2017 on our 2024 Notes (as described below). In addition, we continue to incur significant net losses, which has caused us to have a stockholders’ deficit of $1,470.4 million as of September 30, 2017.

Although we commenced initial production from our Heidelberg project in January 2016, our ongoing capital and operating expenditures will vastly exceed the revenue we expect to receive from our oil and natural gas operations for the foreseeable future. In order to grow production, we need to develop our discoveries into producing oil and natural gas properties, which will require that we raise substantial additional funding. If we are unable to raise substantial additional funding on a timely basis or on acceptable terms, we may be required to significantly curtail our exploration, appraisal and development activities or sell assets.

In assessing whether there is substantial doubt about our ability to continue as a going concern, we considered our projected cash inflows and outflows as well as any cash related covenants associated with our financing structure. The indentures governing our 10.75% first lien notes due 2021 (the “First Lien Notes”) and our 7.75% second lien notes due 2023 (the “Second Lien Notes” and together with the First Lien Notes, the “Secured Notes”) contain certain covenants including the maintenance of a minimum consolidated cash balance (as defined in such indenture) of at least $200.0 million. If we are unsuccessful in our current marketing efforts with respect to the sale of our Gulf of Mexico assets and do not make or receive any payments to or from Sonangol, we expect our projected cash balance would be out of compliance with the minimum consolidated cash balance covenant during the first quarter of 2018. If the holders of the Secured Notes were to accelerate the indebtedness under the Secured Notes as a result of such default, such acceleration would cause a cross–default or cross–acceleration of all of our other outstanding indebtedness. Such a cross–default or cross–acceleration could have a wider impact on our liquidity than might otherwise arise from a default or acceleration of a single debt instrument. If an event of default occurs, or if other debt agreements cross–default, and the lenders under the affected debt agreements accelerate the maturity of the debt outstanding, we will not have sufficient liquidity to repay all of our outstanding indebtedness. Thus, we have concluded that there is substantial doubt about our ability to continue as a going concern.

On October 10, 2017, we received a notification from the New York Stock Exchange (“NYSE”) that we are no longer in compliance with the continued listing standards because our average global market capitalization had fallen below $50.0 million for 30 consecutive trading days and our stockholders’ equity was less than $50.0 million. If we are unable to maintain compliance with the NYSE listing requirements, our common stock will be delisted from the NYSE, which would constitute a “fundamental change” under the terms of the indentures governing our 2.625% Convertible Senior Notes due 2019 (the “2019 Notes”) and our 3.125% Convertible Senior Notes due 2024 (the “2024 Notes” and together with our 2019 Notes, the “Convertible Notes”). In such case, we could be required to repurchase for cash any such Convertible Notes. A requirement by such holders for us to repurchase some or all of such notes for cash would cause a cross–default or cross–acceleration of all of our other outstanding indebtedness.

Our ability to continue as a going concern is subject to, among other factors, (i) our ability to monetize assets, obtain financing or refinance existing indebtedness and continue our cost cutting efforts; (ii) the production rates achieved from Heidelberg; (iii) oil and natural gas prices; (iv) the number of commercially viable hydrocarbon discoveries made and the quantities of hydrocarbons discovered; (v) the speed and cost with which we can bring such discoveries to production; (vi) whether and to what extent we invest in additional oil leases and concessional licenses; and (vii) the actual cost of exploration, appraisal and development of our prospects.

There can be no assurance that we will be able to obtain additional funding on satisfactory terms or at all. In addition, no assurance can be given that any such financing, if obtained, will be adequate to meet our capital needs and support our growth. If additional funding cannot be obtained on a timely basis and on satisfactory terms, then our operations would be materially negatively impacted. We have engaged Houlihan Lokey, Inc. as financial advisor and Kirkland & Ellis LLP as special legal advisor to advise management and our board of directors regarding potential strategic alternatives to enhance liquidity and address our current capital structure. Such strategic alternatives may include asset sales or liquidity–enhancing transactions that we have commenced previously, as well as restructuring some or all of our debt to preserve cash flow which may include seeking private restructuring or reorganization under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code").

The marketing efforts with respect to our Gulf of Mexico assets continue, but have taken longer than anticipated. If we are unable to sell our Gulf of Mexico assets or the entire company on favorable terms or at all, or enter into an alternative strategic transaction, we may seek bankruptcy protection to continue our efforts to restructure our business and capital structure and may have to liquidate our assets and may receive less than the value at which those assets are carried on our unaudited condensed consolidated financial statements.

Their bond due December 2019 last traded at 10 cents, for a yield to maturity of 162%.

Distressed Bond Watch

XCO Sept 2018 maturity - 240% ytm.
CIE Dec 2019 - 153% ytm.
EGLT 2020 - 40% ytm.
BONT 2021 - 43% ytm.

Have a Donut

	Maturity	YTM	CY	Mcap
XCO	2018	167%	23%	$29
CIE	2019	85%	10%	$50
REXX	2020	41%	20%	$22
BONT	2021	38%	20%	$11
HOS	2021	32%	12%	$115