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How Bad Is It For Shale Companies: The Cost Of Resolute Energy's New Second-Lien Debt: 25%!
Over the weekend, we saw the first casualty of low oil prices as WBH Energy went into bankruptcy. Today, Bloomberg reports,Resolute Energy Corp. has been forced by low oil prices to borrow at distressed levels. The Denver-based company, which we previously highlighted as having a 4.5x Debt/EBITDA (there are a lot higher), managed to procure a new $150 million 2nd term loan from Highbridge Capital (mostly used to roll old debt). The cost of funding: 11% coupon plus 5% upfront (and a guaranteed 25% return for the lender if Resolute pays it back early). At that cost of funding, it is no wonder that Resolute's bonds remain, to borrow a Charlie Evans phrase, catastrophically priced.
Current 5Y Resolute bond yields are hovering between 32% and 27%...
As Bloomberg reports,
Highbridge Capital Management funds committed to lend $142 million of the $150 million second-lien term loan.The same individual who signed the credit agreement on behalf of Highbridge also signed for the other two named lenders, indicating that Highbridge-managed funds may have underwritten the entire deal.
Highbridge is an alternative investment management firm owned by JP Morgan Asset Management.
Resolute Energy's $150 million second-lien term loan was priced to pay interest of Libor plus 10 percent, with a 1 percent Libor floor, ensuring that lenders would receive at least an 11 percent coupon in addition to a 5 percent upfront fee. Since Resolute received $134 million of net proceeds, the loan may also have priced at a discount to further increase the yield. If Resolute repays the loan early, it's obligated to include additional payments to ensure that the lenders receive at least 125 percent of their invested capital.
The company used net proceeds of $134 million to pay down its borrowing-base revolving credit facility. As the size of the borrowing base was reduced by $95 million to $330 million, the new loan increased Resolute's total liquidity by about $40 million to $60 million.
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In other words - to assuage fears, Shale companies must pay at least 25% to get funding - an entirely abhorrent cost of capital (unless oil suddenly rips to $300/bbl <sarc>)
Here's what Highbridge will own if it all goes pear-shaped...
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Of course, there are a lot more to come if funding costs remain at these levels of extreme. In December we illustrated the problem names (in the publicly traded markets) among the most-levered energy companies in America...
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So for everyone worried about rising rates - don't! Because for the engine of US economic growth - The Shale Industry - rates have already risen to extremes that simply make everything non-economic...
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Might be time to start looking for work at Macy's, ohhh wait.
16% does not equal 25%, which is merely the early pay off net penalty.
and the 5% is a closing fee which should be amortized over the life of the loan.
Sloppy and misleading.
Read carefully -- even if the loan is repaid with the smaller interest rates the oil company has to make ADDITIONAL payments such that the bank/financing company gets 125% of any money that is lent. The rates are not as important in these carpetbagger deals as the terms -- which are FULL of this kind of crap.
even at 16% ResEn should just put it on the credit card.
What's with the maps Tyler? Stick to what you know. Fear mongering.
https://www.youtube.com/watch?v=VI6tBwVjyOY
Fuck me!! I didn't know the payday loan guys were now keeping shale drillers afloat.
Highbridge is an alternative investment management firm owned by JP Morgan Asset Management.
Money Tree Merchant Services (HSBC); Money Tree Merchant Services, Inc. (MTMS), a registered ISO/MSP for HSBC Bank USA
http://www.moneytreemerchantservices.com/privacy.htm
HSBC sold a tranche of credit card 'debt' to Capital One recently. I'm sure 'Highbridge' might offer their tranche for sale in the future...
"FUCK ME".
FUCK US ALL. That's the idea!
The cost of funding: 11% coupon plus 5% upfront all adding up for a . At that cost of...
How can I read carefully when the terms are cut off in mid sentence?
As I read what is there, after three years, the early pay off is moot, and amortizing the 5% closing costs yields a tax deductible interest expense of ~ 13%.
I don't doubt that there are snakes in the contract, given who owns these bottom feeders, but the head line has little to do with the facts presented.
"If Resolute repays the loan early, it's obligated to include additional payments to ensure that the lenders receive at least 125 percent of their invested capital."
over the life of the loan, I think, but you can't know without wading through the whole indenture.
That keeps closing costs somewhat proportional to interest. Lots of lawyers and accountants get paid on these rolls.
Without the term defined who knows.
Aren't these loans called revolvers because that is what the lender holds to the borrowers head?
Andrea Rossi's E-Cat Devours Lockheed's Hypothetical Compact Fusion Reactorhttp://pesn.com/2014/10/22/9602554_Andrea-Rossis-E-Cat_Devours_Lockheeds...
Due to the existence of the E-Cat or Energy Catalyzer, there is no reason – whatsoever – for traditional hot fusion projects to be proposed or continue. No complicated, expensive “hot fusion” technology can compete. Andrea Rossi's technology offers a way of producing vast amounts of power while using no radioactive materials, producing no nuclear waste, and emitting no radiation into the environment.
Lockheed Martin makes that shitty and very expensive F-35.
https://www.youtube.com/watch?v=mxDSiwqM2nw
THE F-35 IS A LEMON - PIERRE SPREYbullish as we have decoupled from crude and natty price...and the rest of the world
....and reality.
Just BK already, jeez..... Oh wait, that's the plan AFTER you get the cash....
Yep, secure the Goldn parachute money first, THEN- BK.
Bankers taking over the oil business.
Everybody wants to rule the world, but only bankers have the unlimited cash to do so.
Or so they think. Printing paper from thin air will ony work for so long.
Show me a historical point where they got their comeuppance. Go ahead, I'll wait.
Falling oil prices are taking their toll on American energy companies. On Sunday, Texas shale oil company, WBH Energy, filed for bankruptcy in Austin, Texas, the first American shale oil company to do so, but probably not the last.
http://www.globaldeflationnews.com/plummeting-oil-prices-spur-deflation-...
http://www.globaldeflationnews.com/shale-oil-companies-on-the-ropes-firs...
Resolute downgraded ... no surprise there.
http://tickerreport.com/banking-finance/382162/resolute-energy-corp-downgraded-by-raymond-james-nyseren/
Tick-tock, shell shale companies. Tick-tock, bitchez.
Highbridge Capital Management - owner JP Morgan. Resolute is hosed. Nick, this is Jamie. I'd love to help you so here's the number for our loan shark division.
The strategy for all these companies must be to do anything to avoid bankruptcy for as long as possible and try to stay afloat until oil prices recover.
that might help if resolute had any oil. :snark:
you almost nailed it:
The strategy for all these companies must be to do anything to avoid bankruptcy for as long as possible and try to stay afloat until [oil prices recover.] bonuses are paid.
National security issue. Pappa gov will infuse the wells
Highbride gonna own a shitload of rattle snakes... LOL!!!
The vultures swoop in. It would be better to declare bankruptcy early rather than look for these types of loans. In an honest setting, the bank/financing company would work with the oil company to ensure that the oil company survives. With a loan like this, the oil compnay is dead meat. Hopefully the oil company will sell off its assets to other small oil companies BEFORE defaulting to these guys.
The loan covenants will not allow that.
Amerika Stronk!
You cold fusion and LENR haters are gonna hate. F**k the Zaudis and their handlers.
http://pesn.com/2014/10/10/9602543_Apocalypse-Revealed--The-Four-Horseme...
Apocalypse Revealed – The Four Horsemen of Andrea Rossi's E-Cat Lithium Iron Nickel HydrogenIt produced around 3.5 times more energy than was required to keep the clean nuclear reaction going.
Good strategery - grab millions, pay huge executive bonuses and dividends, then declare BK. Brilliant plan ! Loot the vulture, err "venture" capital bank !
Outfox a vulture merchant bank ?
In your dreams, the original loans may have been covenant lite, I guarantee this one isn't.
....oil
....money
which is more important
3 more months like this and there’s a oil shortage again.
Great!
The futures markets think it will settle back to ~ $70.00 about a year out.
At least they have skin in the game.
http://srsroccoreport.com/wp-content/uploads/Total-Global-Oil-Demand-201...
Record oil demand in Q4...
People need to wake up for what’s comming!
Oil 200 will most likely be in the cards if thos continues for more than a year!
Sounds like someone's trying to call a bottom. Record demand huh? So you're now a permabull telling us the economy is on fire?
All those new fast food robots need to commute to work somehow.
Oh...wait....
Yea thats the official line, but we all know this was all a collaboration to 'get Putin', remember?
I do not watch shit TV but I turned on the radio for just a second. Glenn wailing wall Beck the mormom was demonizing Putin and LePen. What an assh*le he is.
I caught a couple minutes of his anti-Putin tirade and it scared me to think of all the Jews and bible thumpers who listen to him and believe his world view. He's Dr. Strangelove all over again. I couldn't stomach his lies and switched stations.
Will be interesting to see the production rates in ND and Texas. Production was slightly down in October.
TBTJ abusing asymmetric leverage and knowledge of positions to inflict pain on those with real assets and real options (oil in ground)... Hope the oil industry starts converting all TBTJ assets to gold to squeeze them back. Unbelievably brazen that JPM is essentially doing it directly.
When the bottom falls out those with no debt can shutter the operations and wait for better days. Those who operate on leverage are toast when the bottom falls out. So, look at who is leveraged, and who carries the lesat debt load, that should sort out the dead from the survivors. Only if Saudi has it's way, the survivors will be minimal.
Wait for the rip to 200/brl.
There won't be survivors.
Look for the new JPM Shale-Oil CDOs soon to be available from your favorite broker.
Needless to say, these high interest paying securities have been rated AAA by both Moody's and Fitch.
Get yours now before the issue is sold out!!
Long lipstick!
Buying second lien debt is a death wish. Buy either the most senior paper you can or buy the lowest paper that gets issued and pray.
always true except when the Bank has the first and second - Hybridge and JP Morgan can manipulate the terms to protect the second
That's creeping up into usury territory
or pay day cash advance lending rates
Maybe they can skip banks soon and stop by one of those legalized robbery marts for a loan. I'm sure one of their friendly neighborhood organized criminal franchises would be glad to assist
I'm sure glad I didn't take that $45/hr job driving a truck in the oil fields of North Dakota last year. Imagine if I had signed that 12 month lease for a one bedroom camper for $1500/month. Whew!
I say nothing... Look at the one year chart.
http://www.marketwatch.com/investing/stock/dpm
"15% and your first-born male child"
a couple weeks ago I was trying to figure out a way to maybe invest in shale co.'s, after the bottom was found.
now I wouldn't pay for the electricity it took to look up any further information on my computer.
1. Obama stated he'll veto the keystone bill.
the next 3 aren't definite, but the way things are going, it fits the m.o..
2. starting a few days ago earthquakes happened on, or near fracking fields, and immediately, fracking was responsible.
3. all wells that are being vacated will never operate again, epa will make it as hard to start fracking wells back up as getting a license to build a nuclear plant.
4. the fracking wells, if any that stay operable, will be subject to rigorous epa testing.
our govt. is racing us away from energy independence as fast as it can.
you have to figure out when the big boys, (global, multi-nationals), hurry their pace of vacating wells, there's a global slow-down, but there's still a market, and Russia will fill any gaps in supply they can.
I don't know how big of ships, or tankers can get from the mediterranean sea, into the black sea, but the brics, and the euro/asia federation, could rehabilitate Greece's shipping business, hint, hint.
if I were Putin, I'd go back to when the ruble was slammed, find the value of oil, to the ruble, and float that value for all Russians.
the Russian citizens wouldn't be hurt as bad, with this wild fluctuations in the ruble, and oil, and when oil prices rise, supposedly so will the ruble, this would keep some wealth in the citizens pocket during bad times.
a real stimulus, no loans to pay back, all Russians, and Russia businesses participate the same.
Tylers of course are writing for their apocalyptic audience world view. The two companies they have written about are no name marginal producers. I can assure you that the established tight oil players are not paying 25% for money.
Here's a tip: if you seriously want to invest in tight oil companies but are nervous about taking an equity position, then look at some of their bonds. Many are available for less than par thanks to the hysterics of the market.