FWIW, I would not be surprised to see SSN restructure its balance sheet significantly. The reasoning for the logic follows that of other E&P companies and since I continue to hold Lonestar some of their efforts might also be applicable to SSN.
1. RBL is the most restrictive covenant debt. RBL is also under the scrutiny of the OCC so the banks themselves are under the microscope and are looking for ways to reduce their RBL. Every opportunity they get they appear to be reducing BB (even if oil prices are going up the strip is not reacting as strongly).
2. Lonestar, like others, is adding 2nd lien debt. What is typically happening is the bank is lowering BB and the E&P is issuing 2nd lien debt, issuing equity and selling assets to fill that gap (sound familiar?). In the case of Lonestar it has issued equity under a "repurchase agreement" of 2nd lien debt and used that cash to buy its long term debt (which is currently at a discount to par as it is considered "not investment grade"). They are also selling their conventional assets - AHEAD of coming BB redetemination in mid Nov. Their conventional assets were valued at PDP PV10 of approx $17.5M back at end Dec 2015. The sale closes Oct for $16M. Depending on leverage, guessing 75% of that would have to pay down the proportionate RBL anyway ... so net debt reduction of $4 ish. Lonestar clearly trying to remain ahead of the bank (about $95M drawn on a $120M BB which probably gets reduced to about $90M maybe - right in line with the numbers).
3. I think SSN might be trying to do something similar. Clean up the assets to a single, capital efficient acreage. Take some of the pressure off by minimizing the RBL and the restrictive covenants. Put in some 2nd lien debt (hopefully the interest rate isn't too much above 10% for them) and issue some further equity for working capital. Don't over drill in the short term unless SSN can convince a 3rd party capital party to become a drilling partner (like Lonestar).
That might end up being a little dilutive but it makes for a stronger company IMO.
GFTA
SSN Price at posting:
0.4¢ Sentiment: None Disclosure: Not Held
