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The "Revolver Raid" Arrives: A Wave Of Shale Bankruptcies Has Just Been Unleashed
Back in early 2007, just as the first cracks of the bursting housing and credit bubble were becoming visible, one of the primary harbingers of impending doom was banks slowly but surely yanking availability (aka "dry powder") under secured revolving credit facilities to companies across America. This also was the first snowflake in what would ultimately become the lack of liquidity avalanche that swept away Lehman and AIG and unleashed the biggest bailout of capitalism in history. Back then, analysts had a pet name for banks calling CFOs and telling them "so sorry, but your secured credit availability has been cut by 50%, 75% or worse" - revolver raids.
Well, the infamous revolver raids are back. And unlike 7 years ago when they initially focused on retail companies as a result of the collapse in consumption burdened by trillions in debt, it should come as no surprise this time the sector hit first and foremost is energy, whose "borrowing availability" just went poof as a result of the very much collapse in oil prices.
As Bloomberg reports, "lenders are preparing to cut the credit lines to a group of junk-rated shale oil companies by as much as 30 percent in the coming days, dealing another blow as they struggle with a slump in crude prices, according to people familiar with the matter.
Sabine Oil & Gas Corp. became one of the first companies to warn investors that it faces a cash shortage from a reduced credit line, saying Tuesday that it raises “substantial doubt” about the company’s ability to continue as a going concern.
It's going to get worse: "About 10 firms are having trouble finding backup financing, said the people familiar with the matter, who asked not to be named because the information hasn’t been announced."
Why now? Bloomberg explains that "April is a crucial month for the industry because it’s when lenders are due to recalculate the value of properties that energy companies staked as loan collateral. With those assets in decline along with oil prices, banks are preparing to cut the amount they’re willing to lend. And that will only squeeze companies’ ability to produce more oil.
Those loans are typically reset in April and October based on the average price of oil over the previous 12 months. That measure has dropped to about $80, down from $99 when credit lines were last reset.
That represents billions of dollars in reduced funding for dozens of companies that relied on debt to fund drilling operations in U.S. shale basins, according to data compiled by Bloomberg.
“If they can’t drill, they can’t make money,” said Kristen Campana, a New York-based partner in Bracewell & Giuliani LLP’s finance and financial restructuring groups. “It’s a downward spiral.”
As warned here months ago, now that shale companies having exhausted their ZIRP reserves which are largely unsecured funding, it means that once the secured capital crunch arrives - as it now has - it is truly game over, and it is just a matter of months if not weeks before the current stakeholders hand over the keys to the building, or oil well as the case may be, over to either the secured lenders or bondholders.
The good news is that unlike almost a decade ago, this time the news of impending corporate doom will come nearly in real time: "Publicly traded firms are required to disclose such news to investors within four business days, under U.S. Securities and Exchange Commission rules. Some of the companies facing liquidity shortfalls will also disclose that they have fully drawn down their revolving credit lines like Sabine, according to one of the people."
Speaking of Sabine, its day of reckoning has arrived
Sabine, the Houston-based exploration and production company that merged with Forest Oil Corp. last year, told investors Tuesday that it’s at risk of defaulting on $2 billion of loans and other debt if its banks don’t grant a waiver.
Another company is Samson Resource, which said in a filing on Tuesday that it might have to file for a Chapter 11 bankruptcy protection if the company is unable to refinance its debt obligations. And unless oil soars in the coming days, it won't.
Its borrowing base may be reduced due to weak oil and gas prices, requiring the company to repay a portion of its credit line, according to a regulatory filing on Tuesday. That could “result in an event of default,” Tulsa, Oklahoma-based Samson said in the filing.
Indicatively, Samson Resources, which was acquired in a $7.2-billion deal in 2011 by a team of investors led by KKR & Co, had a total debt of $3.9 billion as of Dec. 31. It is unlikely that its sponsors will agree to throw in more good money after bad in hopes of delaying the inevitable.
The revolver raids explian the surge in equity and bond issuance seen in recent weeks:
Many producers have been raising money in recent weeks in anticipation of the credit squeeze, selling shares or raising longer-term debt in the form of junk bonds or loans.
Energy companies issued more than $11 billion in stock in the first quarter, more than 10 times the amount from the first three months of last year, Bloomberg data show. That’s the fastest pace in more than a decade.
Breitburn Energy Partners LP announced a $1 billion deal with EIG Global Energy Partners earlier this week to help repay borrowings on its credit line. EIG, an energy-focused private equity investor in Washington, agreed to buy $350 million of Breitburn’s convertible preferred equity and $650 million of notes, Breitburn said in a March 29 statement.
Unfortunately, absent an increase in the all important price of oil, at this point any incremental dollar thrown at US shale companies is a dollar that will never be repaid.
Finally, speaking of Samson, its imminent bankruptcy should not come as a surprise. Back in January we laid out the shale companies which will file for bankruptcy first. The recent KKR LBO was one of them.
Many more to come as the countdown to the day of reckoning for the US shale sector has just about run out.
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And then the buybacks slow down and then, children...
Timbeeeeer.......
There will be blood...
"No one could have seen this coming." - Mr. Yellen, again.
Heh heh....OMG....no one saw this coming either.
Screw you MSM...
http://www.gofundme.com/memoriespizza
This whole thing smells like they were fishing for attention & $$ from the moment they made their announcement to not cater LGBT weddings.
Who the hell caters their wedding with PIZZA and WINGS except tacky straight white people?? Shit- might as well have it at Chuck-E-Cheese so you can play video games with your pizza and soda-pop. Has any gay or lesbian every asked for memories to cater their wedding before?
Their 'plight' does not pass the smell test.
Cheap, easy money plus Wall St. magic bonds, what could possibly go wrong?
Peak Oil...to Peak Blood...to WTFJH!
What we haven't seen anywhere is the full life-cycle cost of a barrel of shale or tar sands, and once the Ponzis meet physical reality, it will be obvious, via their disappearance, that the BTUs burnt by the infrastructure that extracts them is far above the BTUs extracted. The cost of the drill rig and the drilling is a fraction of the total energy expended in the procurement.
It's a matter of weeks or months now before Armageddon signs on...
"What we haven't seen anywhere is the full life-cycle cost of a barrel of shale or tar sands"
BINGO +1,000 That is a fact, it ain't cheap and it ain't viable, not in the long run. Anything can look good at the start, before the whole life cycle cost gets worked in over time!
"This sucker is going down!" George W. Bush
No, there will be bailouts all around......
Huge rally in Bakken shale companies lately even though spot prices are $33 for sweet and $22 for sour crude.
Back in the old days you had the money first, you drillied second.
EXACTLY!! Just like buying a car....if you took the credit away there would be riots with the masses asking 'how do you expect us to drive!'
Wildcatters.
It really does show a lack of business sense to work with your own money.
The Panic in Needle Park
The drug is becoming scarce
And now if you buy a car with a loan that you know damned well you can't repay, then you are a VICTIM of a PREDATORY LENDER!!!
Swift announced in January that it will cut its 2015 capital spending budget by up to 75 percent because of slumping oil prices. The company was already struggling before the slump, with stock prices falling significantly the past few years.
http://www.bizjournals.com/houston/blog/breaking-ground/2015/03/as-energ...
....and, they SHOULD have the money, but too many Oil and Gas guys are building their 8,000 square foot homes in Houston. They squandered the cash from the good days, and their companies (and 99% of the employees) will be go hungry in the lean years. And if you want the visual yourself, take a google earth tour of the 77024 zipcode. May not be current, but I've been watching the hyper jumbo homes going up constantly over the last 5 years.
SOP most of the $$ stops at the top.
I lived in Houston, Westheimer and Shepard. Used to go to a friend's house for dinner parties. They were friend's with Oscar Wyatt's wife's chef (Oscar had is own Chef) Chef Tommy was from France, fun guy used to cook us a lot of good food! Part of his job was flying -on the GulfStream to South France and getting the Chateu ready for the Wyatt family yearly visit...
Remember hearing something about Oscar commuting the 3 miles to work in a helocopter...
Well, that was long ago and we drank a lot, consequently, memories fuzzy...
Some O&G workers may feel the pinch if they get "restructured" (aka, fired). I know two engineers who bought houses ~$680k in north Sugar Land just outside of Houston (I think Telfair?) where the property tax rate they tell me is over 3%.
That's going to bite them hard I'm afraid. Add two or three kids, house maintenance, etc to the equation and it could get very rough for them.
Short Sale!
Seriously though, I drill into my boys to NEVER Ever date a high maintenance girl, lest you end up marrying one. Wish upon your enemy to marry that bitch: her looks won't last, and neither will the romance or his money. And their kids will also be high maintenance monsters.
Cardinal rule: Live well within your means, no matter what temptations you face. Because for most people it is Outflow that is a bigger problem than Inflow of money, and everyone is always more willing to 'help' you with the former than the latter.
He drove his own car to work, an old Infinity or a pickup truck. Before the sale of Coastal to Elpaso, he did have someone walk his dogs.
Unlike most of these new fangled guys, guys like Wyatt made money and kept 10K workers employed and their pensions whole. Coastal was no fly by night shale outfit.
Re: drinking....I hear ya.
well in 6 months they will be cheap.
or you just took the money and ran second, but why quibble.
"...you had your money first, then you drilled ".
Have no fear, the Saudis are here. To buy up the shale competition for $0.10-0.20 on the dollar.
Do you think the FED will step in and ... well, what could they do anyway?
purchase portfolios from Fannie and Freddie...oh, wait.
It's going the opposite way now. They are banging out secondary offerings as fast as possible. Whiting just did a $1B secondary in thehole the other day. The banks won't allow any stock buy-backs in this space.
Right, this is just foreplay!
Remember boys and girls. If you take a loan out for something, you don't own it. You are now a slave to the bank or bond holder and they own your shit.
Also remember....if they tax your shit ....you don't own it. That nice house you paid cash for or worked hard to pay off the mortgage free and clear? Stop paying your property tax and see what happens. That nice car you paid off? Drop your insurance, your car tag and driver's license and let's see how long you keep that car.
In this world, you don't own shit but your own mind. And that is a constant battle.
We don't have any more loans or credit cards.
All of our real estate is paid off, and we no longer pay property taxes.
Our truck is paid off, and the mandated/minimum (government) insurance is about $25 per year (we have "first class" auto insurance however, which costs us about $400/year).
Do we live "somewhere over the rainbow?" Do we live in "the land of the great and powerful Oz?"
No, we live in Thailand.
Feels good to breathe and relax again after working most of my life to pay the banks, governments, and oligarchs.
I call it "positioning."
Are you correctly "positioned," mates?
wa waa, cry me a river. greedy bastards. fucken - eh...
Fucken Bakken ?
Slippy!
bullish for US stocks
So simple....a caveman could do it.
no problemo, GoDaddy is the wave of the future. oil is a barbarous relic.
I needed that belly-laugh...thanks buzzsaw.
Indeed, glad you mentioned that.
We can all sit and design websites and write blogs and sell each other trinkets on ebay.
We are so doomed.
You know things are messed up when black and yellow gold are trash, and paper chits from the Company Store are flash.
What does your CFP or your minister have to say about that?
Negative feedback loop bitchez!
Sabine is a stupid name for an oil & gas company anyway.
The oil fields around the Sabine Pass are some of the oldest in Texas.
I thought it meant that anyone investing with them would have the same loss of money as the Sabines had of their women.
A stranger on the shore ! .... Acker Bilk : https://www.youtube.com/watch?v=Q7jZeXvpyZQ
Just issue more stock baby! Dilute your way out of the hole!
Or pick up free equities, interest rates are going to rise soon don't you know.
some saw this coming and diluted already like Oasis, they said they were going to spend in line with cash flow then diluted a month later, these folks are cash poor with oil this low
' Yes we can! '
Bush/Clinton 2016
Clinton/Bush 2016
Livin the dream...
I can't imagine Jeb or Hillary saying : "I never had sex with that woman!"...
No, no, no, not that again ! That would be worse than kristal nacht !
Just say no.
It's all part of the plan.
Though it does make you wonder who might have seen it coming and decided that the insurance payout on their Gulf offshore rig was worth-while getting while the insurer is still solvent. Death toll be damned.
Drill, baby, drill!
Where is that self-serving bimbo MILF?
What sort of pressure does this put on junk bond yeilds? It's a dominoes question.
Is that a rhetorical question?
Quantrell's raiders trying to save the South and its frack and crack "drill baby drill" grey-coats.
Perhaps the headline should read, "A Wave of Shale Bankruptcies is About to be Unleashed". So far, only one, so not a wave, has been unleashed.
Do you mean one "big" one? Because there certainly has been more than one this year.
A side effect of central banking monetary policy. The real cause is the requirement to repay levied interest on money creation with creators not creating enough to ever pay back. Then starts the phase of tenticles from commerical banks crush their clients to buying up the ashes for cents on the dollar - making money all the way. Each time serving their purpose which was and always has been to provide for those said creators at the expense of everyone else
Ooooh, there's a surprise.
DavidC
I dont think there's any chance, with obozo in office and all, of the government subsidizing the operations of these poor shale oil boys on the premise of peak oil and domestic need, is there?
No. didnt think so.
You mean more than they already have?
"Junk-rated shale oil companies"
Junk-Rated...says it all.
"Sabine Oil & Gas Corp. became one of the first companies to warn investors that it faces a cash shortage from a reduced credit line, saying Tuesday that it raises “substantial doubt” about the company’s ability to continue as a going concern."
If you're operating your business off a credit line, you don't have any business being in business.
operating your business off a credit line
Private Equity
Unless you are in the fracking business, where the business plan is to borrow a bunch of money rather than put your own at risk, pump a bunch of carcinogens into the environment, extract a bunch of petroleum and natural gas, buy a bunch of politicians who would sell their own mothers into prostitution to get funds for campaigning, live high off the hog for as long as you can, then put the company in bankruptcy before the environmental lawsuits do it for you.
They can get rid of the environmental damage by simply dumping the fracking wastewater in aquifers (like they do in California, for example). Of course, without operating capital, they'll have no choice anyway. That shit is very expensive to dispose of...
MMMM. Cool, clear water!
Well, it beats workin'.
Kickaha, you're hired!
Yeah, ain't America great? Fuckin' A!
Tell that to .gov. Now your talking!
prop-putin propagada channels: sanctions against putin regime can't do nothing
reality: Gazprom profit plunge 70% http://www.themoscowtimes.com/article.php?id=515093
profit plunge because gas prices plunge because oil prices plunge because world economy plunge.
i don't understand where are you find this "sanctions against putin regime can't do nothing"?
sanction do damage and?
Dead oil industry in USA or profit plunge? AND?
And just who will be picking up the pieces for pennies on the dollar on the courthouse steps?
Lotta leases to pick up for down the road when viability returneth.
the majors will....almost seems contrived
Isn't a revolver raid more when the bank revokes your revolver just because. Borrowing base adjustments happen and should happen.
They certainly happen and should happen. The problem is companies to which said adjustments happen virtually always have no other sources of liquidity so it becomes a toxic spiral.
An undeniable "Truth of Life"; you only get money from a bank when you don't need it. You would think these dumbshit CEO's would have learned this from biz history. Apparently not.
www.traderzoo.mobi
"If they can't drill, they can't make money."
If they do drill, they don't make money. Quite the conundrum.
And XOP shooting straight UP this morning.
don't worry! Jamie and Lloyd are setting up funds to invest in these distressed "snicker" companies.
I witnessed the same thing in the early 90's with farmers.
the price of farm ground exploded, the bankers were making personal trips to the farms updating them their newly rise in asset values, which gives you more borrowing power.
many of the younger, and the less conservative farmers took full advantage, there were new pick-ups, cars, machinery, regular trips to vegas, and what ever money could buy.
with-in a short few years they couldn't make their monthly payments, and were forced into selling 300 acres, for what they borrowed on 100 acres, along came investors, and small farms were dramatically reduced.
at least the casino's are more humane, they don't offer credit to the unsuspecting, and less knowledgeable.
And what bankruptcy court is it I go to to buy these oil wells from.
My how the mighty have fallen. These dead beat sticking the tax payer with the bankrutcy bill oil well owners.
Buying more oil wells that they can afford most likely.
Deadbeats leaving the key in the oil well and walking away.
Keeping the oil well pumping for five years but not paying.
I think it worse than it seems. I've not heard from CLR about my royalty check for a couple of weeks now, and they are supposdly the big dawg.
Whiting recently diluted shareholders 40% to pay down its debt facility. They saw the reset coming, rock and a hard place.
dupe
"at this point any incremental dollar thrown at US shale companies is a dollar that will never be repaid"
Truer words were never spoken! I imagine all the people who chased yields by going into energy related junk bonds. Told that even if junk, they are backed by the great shale boom, AMerican's future energy independence! Patriots piled into Fracking Junk, not just for yield, but out or red, white and blue patriotism. In fact, brokers played on this patriotism in their sales pitches! Don't just earn yield in a ZIRP world, but back America's energy independence.
When someone uses the flag to sell you an asset, run the fuck away as fast as you can!