Hi TT,
OK, now I understand.
So in general I'm most exposed to CHK (which was like my 3rd O&G stock ... but all good things come to an end I guess). This time I can't see a Harry Houdini escape. That would be the largest loss. Next would be LONE. Then SNDE. Think I'm safe on all others.
Are the BB themselves comparable .... I don't think the absolute size is the thing that matters most. When it matures, does any other unsecured debt mature beforehand, are there springing conditions, can they service the debt within covenants, are covenants in danger of being breached,
But for clarification yes, comparable in size. PVAC has had their BB has been redetermined as posted. Their argument as presented is they "comfortably" service this new amount ($350M) within covenants. They also have $200M Unsecured Notes. Completely true but not truly complete. They have suspended all drilling and completion. So less Capex & FCF but what does it do in reality to their adjusted EBITDAX covenant for example.
LONE has NOT yet released the result of their BB redetermination but I put up what Fitch was thinking. That happens in next to weeks.
$290M is their current BB facility. $43M was available at end Dec'19. When they filed their 10K in April they noted $22M available. So I think they are at $270/$290. LONE also has $250M of notes that mature in 2023 (which is after the BB). LONE has a 4X EBITDAX covenant also. Liquidity will be the end of LONE. Their operating results are good (might be better than SNDE on the production side), their hedging is great but the balance sheet is not something where the common equity makes it. After the BB and Notes comes the Preferred stock. No way I would buy LONE today
So how does SNDE compare? I don't care much more really. Neither one is worth much more than the other. The assets might be OK but crikey they both spent a small fortune to develop them to this point and now the commodity itself is "worthless". That of course will change being cyclical. SNDE does not have a problem with liquidity that we know of so a 20% reduction in BB would not be a problem given their drawn amount.
Why does a bank offer a RBL in the first place? It's the most senior of loans and what a company uses for WC & development once a PDP base has been established. The price deck used is one of the key inputs. Price determines whether those reserves are economic or not. We see a lot of that in the changes to Reserves estimates in Annual Reports. So if the collateral value drops and the production drops (due to curtailments on top of natural decline) and the cash flow drops because of both then the Bank has to consider the safety of the loan and reduces the amount available. It's all proportionate. The bank does not exposure to the production tail. It wants to be repaid in the first half of the field life. We've heard Eric talk about "the tail" before how FCF will repay and we are left with FCF of the tail. What proportion is appropriate for the Senior Secured Debt, the Unsecured, Convertibles, Preferred and then Common Equity?
I think you may be coming to the same conclusion as Fitch. We live at the bottom of the capital structure. If the "value" of the Enterprise Value of company exists only in the Debt portion then our common equity has zero value. Why is CHK MC still $140M (and $9B(?) Debt) and PVAC $100M MC (and $600M total debt)? The bottom fishers see some trading value?
The market has SNDE, LONE, CHK, and many more in the dumpster. Not all of them will remain there. I'm not dumpster diving. If I was the name I would probably look at oversold would be MRO.
