Wednesday, August 17, 2016

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.

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