I was trying to illustrate the current ratio covenant, but realised I didn't have all the info to work it out, so posted what I had started so that I could look at it later.
As at 30 June 2018
Current assets $50M, current liabilities $75M
(Assume this remains constant)
So end of Q1, SNDE should have
$130m - $140m cash v $190m BB rebase out of $210m
Pro-forma BS
Current assets $180M, current liabilities $75M
(Assuming no change to WC and no drilling).
Given the ratio of CA/CL = 1
SNDE has surplus cash of $105M (to repay an BB redetermination - which they have a $20M buffer on)
So technically, SNDE could withstand a $125M reduction in BB from $210M and still not breach the current ratio test.
But of course as you say we have the 3.5x EBITDA covenant though. Hard to see that being achieved in the absence of any further drilling, so we would need $80M for capex.
Which means we could only sustain a $45M reduction in BB - Assuming we received $12M for Dimmit, 38M fcf in Q4 and $30m fcf in Q1-20.
I'm doubtful about Dimmit (maybe because Eric didn't respond regarding it) - so taking of $12M, SNDE can sustain $33M BB reduction - which is close to your view.
Where we differ though, is I don't see any risk in a current ratio breach - SNDE should have lots of fcf. Our main concern is going to be hitting 360/3.5 = $100M EBITDA as a rolling 12 month rate.
We basically need to somehow sustain $30M EBITDAX per quarter to ensure that at any fiscal quarter, the rolling 12 month EBITDAX is $100M.
(The good thing is cash reduces the minimum requirement as subtracted from debt).
Interesting times. No wonder Eric mentioned it is impossible to predict. We need April to finish so those supply cuts can start impacting the spot price. Whilst the valuation should be predicated on futures, I can't help but think the spot price does impact demand for shares.
The scary thing (even more so it has now been revealed LONE didn't report on time, and then came out with the credit agreement etc etc) is why has SNDE not reported two consecutive deadlines....as the saying going where there's smoke, there's a fire....
"(b) Ratio of Total Debt to EBITDAX. Parent and the Borrower will not, as of the last day of any fiscal quarter, commencing with the quarter ending December 31, 2019, permit the ratio of (i) (A) Total Debt minus the lesser of (B) (I) unrestricted Cash Equivalents of the Loan Parties on such day that are subject to a perfected Lien in favor of the Administrative Agent and (II) $20,000,000 to (ii) EBITDAX for the four fiscal quarters ending on such day to be greater than 3.50 to 1.0."
SEA Price at posting:
16.5¢ Sentiment: Buy Disclosure: Held
