Default Cycle Now In Full Swing As Goodrich Petroleum Is Latest To File Chapter 11

The energy bankruptcy wave has been officially unleashed.

After just yesterday Energy XXI became the latest shale company to seek bankruptcy protection, this morning another troubled energy producer, Goodrich Petroleum announced a prepackaged Chapter filing meant to implement a financial reorganization after struggling to restructure its debt amid declining energy prices.

In its press release, the company announced, that "through the Chapter 11 restructuring, the Company will eliminate approximately $400 million in debt from its balance sheet, substantially deleverage its capital structure and strategically position the Company for long-term performance in an anticipated improving commodity price environment. The RSA eliminates all of the Company's prepetition funded indebtedness other than its first lien reserve based loan facility, which currently has approximately $40 million outstanding, resulting in a significantly deleveraged balance sheet upon the Company's emergence from the Chapter 11 bankruptcy process. "

The filing, just like EXXI's is not a surprise: Goodrich earlier this month reached an agreement with creditors to use its “best efforts” to file for Chapter 11 with a prepackaged plan to reorganize and emerge from court as an operating business. That agreement came after the company’s debt-for-equity exchange offer failed to gain enough traction among debt holders.

As Bloomberg reminds us, on March 16, Goodrich delayed releasing its annual report, citing a large loss that auditors have determined may affect the company’s ability to operate as a going concern. The loss comes "mainly as a result of substantial impaired asset writedowns," Goodrich said in the filing.

But what is most notable, and goes back to what we have said for the past year, is that even in bankruptcy energy companies will continue operating, and perhaps pump even more than prepetition: as Goodrich adds, the prepack agreement "provides for the Company's executive management team to remain with the Company, which will allow for the Company's operations to continue as normal throughout the court-supervised financial restructuring process, including the payment of royalty and operating expenses."

In other words, the pumping will go on.

Goodrich has properties in the Tuscaloosa Marine shale of eastern Louisiana and southwestern Mississippi, the Eagle Ford shale in south Texas and the Haynesville shale in northeast Texas and northwest Louisiana, according to its website. Low gas prices have led it to focus on leasing its existing acreage, according to the website.

As Bloomberg adds, since the start of 2015, about 50 oil and gas producers have gone bankrupt, owing more than $17 billion, according to law firm Haynes & Boone LLP. Goodrich joins shale-focused companies such as Magnum Hunter Resources Corp., which filed for creditor protection in December.

Furthermore, as we noted yesterday, April's total junk bond defaults, over $14 billion as of yesterday, just added another several hundred million in restructured liabilities to the tally. This means that with just 15 days past in the month of April, total high yield bankruptcies are well on their way to surpassing the highest monthly total since 2014.

Finally, putting the default cycle in perspective, here is the monthly default total for Junk and investment grade since 2011.

We expect the April line to be a new multi-year high.