Yep Tibsy it does look as if that is/has become the most likely scenario. This has ended up pretty much as I interpreted it a couple of years back - the punt on Foreman Butte transforming the company (for its shareholders) does not seem to have occurred. Why? Apparently it seems that operating costs (water disposal being at the top of the list) and corporate costs (G&A being at the top of the list) have never ever been under control. The multiple breaches were the evidence. And also as I have said, time and again, SEC PV10 PDP does not deduct G&A (meaning it has one value for the seller and another for the buyer).
I am fully expecting SSN to announce some form of total restructuring in the not too distant future. Not predicting it will or wont happen just saying I would not be surprised if/when it does. As is the case in most of them, existing equity holders will be "wiped" out. Be prepared I guess.
In my experience, it is not uncommon (in the US) for companies to use the CH11 route to restructure even though their assets (book) have an expected value above their liabilities. The $40M package is the clue for me. Prepackaged submission to the court. Really only 1 creditor (MOB) that needs to agree. Judge approves with DIP (which would usually then be most senior debt) and DIP works with other creditors and new sources of capital lenders to restructure. With DIP "owning assets" they may repay MOB in full (or get them to take a small haircut) but for argument sake say it $20M. At this point call it 100% of the company. DIP converts say 50% of that into equity (100% of the new equity of the company as it has cancelled previous common equity) and keeps a 1st lien secured secured note for $10M. Lets say that have already found two more risk tolerant capital providers willing to take 25% each of the new issued equity for $10M each. SSN emerges CH11 with balance sheet that is 75% equity (50% owned by former DIP, 25% by new equity partner 1 and 25% by new equity partner 2) and 25% debt and $20M in working capital.
The example may be a little extreme but not that much - go check Halcon CH11 for example (although they had less assets than liabilities) http://www.ogj.com/articles/2016/07/halcon-resources-files-chapter-11.html "filed voluntary petitions under Chapter 11 of the Bankruptcy Code to pursue a prepackaged plan of reorganization in which the firm would eliminate $1.8 billion in long-term debt" and "creditors would split ownership of the firm and third-lien noteholders would receive more than 75% of the equity."
Halcon kept a small (tiny) portion of the company for existing stockholders https://globenewswire.com/news-rele...cturing-and-Exits-Prepackaged-Bankruptcy.html "As previously disclosed, pre-petition holders of Halcón common stock are receiving 4.0% of the common stock of the reorganized Company and the remaining 96.0% of common stock is being allocated to pre-petition debt holders in the Company, subject to dilution by new common shares issued or reserved for issuance in connection with the management incentive program (the “MIP”) and warrants issued to certain debtholders pursuant to the Restructuring Plan (the “New Warrants”). The Company has determined that it will have 90 million new common shares outstanding before an allocation of shares for the MIP and the New Warrants. This results in pre-petition Halcón equity holders receiving 3.6 million new common shares in the Company, or the effective equivalent of a 1 for 34 reverse stock split considering Halcón had 122.2 million common shares outstanding on September 8, 2016."
Not a lot of positives (for shareholders) that I can find. Don't wish to alarm anyone as my investment in SSN is something I can walk away from with barely a scratch and it was a purely speculative investment that had the chance of a double IF TB could actually deliver on what his presentations stated he would (but what his financial filings said he couldn't).
Good luck.
SSN Price at posting:
0.3¢ Sentiment: Hold Disclosure: Held
