PetroQuest working with banker to negotiate capital structure fix, address liquidity

26 July 2016

by Marion Halftermeyer, Madalina Iacob, and Jon Berke

 

PetroQuest Energy is working with Jefferies to evaluate financial alternatives, said two sources familiar with the matter. The company will soon have to address the August 2017 maturity of its USD 135m in 10% unsecured notes, which remain outstanding after the rest of the tranche swapped into secured debt.

 

The Lafayette, Louisiana E&P company is engaged in talks with Mackay Shields, the majority holder of the remaining notes, about further exchanges, according to two additional sources familiar.

 

PetroQuest in February exchanged approximately USD 214.3m of the then-USD 350m 10% bonds into a new USD 144.6m 10% second lien senior secured note due 2021.

 

PetroQuest and Jefferies declined comment. Mackay Shields did not respond to requests for comment.. The company is scheduled to report earnings next Tuesday (2 August)

 

As of 30 March, the company had all cash liquidity of USD 53.5m. Petroquest has an undrawn USD 300m revolver with a USD 22.5m borrowing base due 2020, which it cannot draw on unless it is able to maintain compliance with covenants of 4x debt to EBITDAX ratio and 4x EBITDAX to total cash interest expense. A revolver redetermination is scheduled for 31 July and has a springing maturity of February 2017, if the unsecured notes are not refinanced by then.

 

The company’s current debt agreements present a web of impediments to striking a deal with Mackay Shields. The second lien indenture provides a basket for the remaining bonds to exchange into additional second lien notes, but stipulates that such and exchange cannot offer better terms than the most recent exchange, according to SEC filings. That means that holding out last time will not provide the firm with an opportunity to obtain a better deal, sources noted.

 

The second lien indenture also precludes the company from using proceeds of new debt to refinance subordinated obligations. In addition, the company is unable to use credit facility draws to purchase or redeem the unsecured notes, according to the second lien indenture.

 

Given its current inability to draw on its revolver, PetroQuest will also need a solution that addresses its limited drilling liquidity, two of the sources said. PetroQuest reduced capital expenditure guidance to USD 15m-USD 20m from original guidance of USD 20m-USD 25m, but willneed additional liquidity in 2017 since it depleted its reserves through asset sales.

 

The 10% unsecured notes most recently traded at 52.6 earlier today, according to MarketAxess. The price has hovered in the high 40 to low 50 range since the February exchange. The new 10% second lien senior secureds recently traded at 68.75 earlier today, according to MarketAxess. It has hovered in the 60s since the February exchange, never breaching 70.

 

PetroQuest’s stock last traded at USD 3.03 per share this afternoon, trending up from the USD 1.60 to USD 1.70 per share range at the time of the debt exchange in January and February, but down from USD 6.08 per share a year ago.