A company reported their quarterly results via press release last week, but today they released their 10-Q, and it contained the following paragraph that was buried in the usual accounting pronouncement boilerplate which wasn’t on their previous 10-Q. Pays to pay attention!
While we were in compliance with the restrictions and covenants under our debt agreements at June 30, 2020, as further described below, there is significant risk that we will not be in compliance with the first lien leverage ratio requirement under our credit agreement in the second half of 2020 without successfully taking mitigating action. Noncompliance with the ratio covenant would constitute a default under the credit agreement, and the revolving lenders could elect to accelerate the maturity of the related indebtedness, and could potentially choose to exercise other rights and remedies under the agreement. Further, our senior secured notes and certain lease agreements contain cross-default provisions which would be activated by a default under the credit agreement, which could result in a similar acceleration of maturity under those obligations.
I purchased some debt post-COVID in this entity, but took a moderate bath on it today by hitting the bid. Although the debt itself was senior secured (and on line with the credit facility), I do not want to be around for the probable Chapter 11 that will be occurring – unless if you have some sort of representation on a debt restructuring, the outcome is not likely worth going through the wait and you can always buy the entity again if it goes public after re-emerging from Chapter 11.
Yeah, I was moderately enthused about the sector in Feb/Mar but after looking a bit more at filings sold out of everything except Arch. They’re all cheap and well-covered until they’re not, and while coalies aren’t quite as optimistic as O&G guys, at the end of the day it’s still a hole in the ground.
(that said, I’d be lying if I claimed I weren’t interested in getting back in!)