Good to see you're digging deeper and putting out some qualifications (good call by the way on $30+ this week - when I start seeing a CMA of $30+ and hopefully $40+ then I think there is real recovery occurring).
(1) On the waiver front - that was getting out in front of the going concern qualification that was going to be put in the 10K. Now they (SNDE Mgmt) would have known that for some time given the operating environment (yes brought about by 2 black swan events so it is out of the ordinary course of events) ... better to have the waiver in place than suffer the breach and be in an event if default making the loans current debt as opposed to long term debt. The banks really don't want to be in the E&P business - for them selling an asset would have to be painful exercise. IMO they would rather have the company seek suitors with a stronger operator as selling an asset in this environment is unlikely to raise enough funds to avoid a haircut for the bankers.
I haven't double checked this, but go back to whatever is the latest amendment on the RBL and Term Loan. I thought originally that the Asset Coverage Ratio existed ONLY in the Term Loan, which expires after the BB, but would cause a cross default if covenant breached. This is the ratio that is causing the immediate problem I think
(2) On the PV9 value. I referenced the SEC PV10 of $675M ... actual PV10 is ~$750M ... so that gives a little more wiggle room and the covenant is PV9 which gives further wiggle room. That's the "good" news. You also mentioned the reductions in operating expenses with service provides - also good news.
But you do need to stack this up against the bad news of what is the price deck used in the BB redetermination. For reference these are simply the CMA's for 2020 (not SEC 1st day of month).
And this is what they were for the last half of 2019
Might give a bit of salsa to the bank's thinking for the BB redetermination of how much risk. Of course the counter is the NYMEX strip pricing (and the counter is the futures curve (esp longer term) is generally not a great indicator of price). It is a risk appetite banking discussion. So in that view an outcome is the Facility may get cut - from $500M to say $300M - on the basis that PV9 is say $500M. That doesn't make SNDE overdrawn as they elected in Dec to have a BB of $210M and are not fully drawn.
However is doesn't help the LTD having to be 1.5 X PV9 ... the magic number would appear to be ~$540M and whatever that number is in practice, you'll know by the end of the week AND the action required to correct it (reduce LTD to $330M ... i.e. pay down revolver to $80M ... which means ... additional equity necessary of $xxx). Substitute whatever you feel would be your PV9 on this price deck. Can't see the Term Loan changing so the BB is the one to be paid down until asset prices recover - IMO.
Same problem with all the small players.
SEA Price at posting:
16.5¢ Sentiment: None Disclosure: Held
