Loan Facilities

In my opinion the focus from this point forward should be on the outstanding loan facilities as the attitude of the Lenders will determine if the Company survives in its current form or not - believe it or not survival is an issue.

The loan facilities are currently (in USD):

-$67 million Revolver that expires in May 2020
- $125 million Term Loan facility that expires in November 2020

The Company has only ever detailed 4 key financial covenants and have also stated that they expect to meet these covenants through 2017. The Revolver is subject to semi-annual borrowing base reviews by the Lender however this can be changed to quarterly or even monthly at the election of the Lender. I think the two key covenants which look to be under some pressure are as follows:

1. Maximum Leverage Ratio. This is defined as Revolving Facility Debt to adjusted consolidated EBITDAX (as defined in the credit facilities) of not greater than 4 to 1 as at the last day of the fiscal quarter. As at the 31 March 2017 the Revolver was drawn to $67 million (including the $1.2 M LOC) and assuming the reported adjusted EBITDAX to 31 March 2017 of $13.8 million reflects the definition within the credit facilities then this ratio stood at 4.85 - this would mean they have breached this covenant!!

2. Asset Coverage Ratio. This is defined as PV9% to Total Debt (as defined in credit facility) of not less than 1.5:1. I'm assuming the PV9% refers to Total Proven Reserves and not just Proved Developed Producing. They don't publish the PV9% but the PV10% at 31 December 2016 was $340 million for Proven Reserves and Total Debt was $191.75 million and so this ratio stood at 1.77. If PV9% is used (its not a linear adjustment) then this must be very close to the 1.5 minimum ratio.

Additionally the PV's were calculated using SEC pricing as at 31 December 2016, which were slightly higher than they are today. With depletion to 30 June 2017 and without any material improvement in the oil and gas prices I would expect that the PV9% would have declined enough to definitely put them in breach of this covenant.

I stand to be corrected on Maximum Leverage Ratio so please blow holes in it if you can see an error. But from what I can see based on the above the covenants Red light is flashing and could be the reason for the "down beat" reporting that some posters have referred to recently.

Now Lenders give covenant waivers all the time to allow company's some breathing space and I'm not expecting SEA lenders to pull the rug out from under them quickly but I think their Lenders will definitely start taking a closer look and doing borrowing base reviews more often than semi annually.

Their Lenders will be concerned with the share price fall as this is one way SEA can reduce borrowings, by doing an equity raise. With the share price falling so far so quickly their Lenders will realise this option is no longer available and will most probably start looking at assets sales.

Some loan facilities have minimum market capitalisation requirements. I'm not saying that SEA does but it wouldn't surprise me if they do. A closer review of SEC filings (for their NASDAQ listing) might shed some more light on their covenants as these filings are usually a little more detailed than ASX / ASIC requirements, I'll try an do this over the next few days.