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Denbury Resources Heads To Restructuring (NYSE: DNR)



Denbury Resources (NYSE: DNR) looks to be another energy bankruptcy after skipping a $ 8 million interest payment on June 30 for its 6.75% convertible senior notes due 2024.

With $ 636 million dollars in debt maturing in 2021, where Denbury wasn't much of a way to escape restructuring, especially with oil still around $ 40. Restructuring will likely cause almost all (if not all) of the new equity to go to shareholders . Denbury appears to be in fairly good shape after restructuring, as it has only a modest amount on the credit facility's debt, and the estimated breakeven point will be reduced to around $ 45 WTI oil after eliminating most of its interest costs.

Denburi's current common stock will only be worth a few cents per share after restructuring at best and has a significant probability of not being worth anything.

Denbury & # 39; s Credit Facility

Denbury & # 39; s credit facility is in pretty good shape. The loan facility for the credit facility was confirmed at $ 615 million on June 26, although there is a temporary limit on loans of $ 275 million plus up to $ 100 million in outstanding credit letters. This limit is in place until the fall of 2020 on a new loan basis provision and appears to be an attempt to prevent Denbury from borrowing too much under its credit facility before restructuring.

Denbury then withdrew $ 200 million under its credit facility on June 29, resulting in $ 265 million in outstanding loans. The $ 200 million in extra cash should allow Denbury to do so through restructuring without the need for additional DIP funding. Due to the relatively low amount of debt facility (without cash), Denbury probably does not need to seek new money to pay down that debt facility debt.

Overall Debt Situation

Denbury has $ 265 million in credit facility debt now, along with $ 200 million in newly available cash and a $ 29 million in working capital deficit from the end of Q1 2020 (excluding derivatives and current maturity debt).

Denbury also has $ 164 million in pipeline financing debt which I assume will remain as of the restructuring.

Other long-term debt mainly consists of the notes to other loans, which represent 76% of its long-term debt.

Million Dollars
Second-Lien Notes $ 1,593
Convertible Notes $ 246
Subordinate Notes $ 245
Total $ 2,084

Given both the large combined size of other lien's maturity and its overall position in the capital structure, others' rights note s will probably end up with almost all (95 +%) of Denbury & # 39; s new equity.

Recovery for lower classes in the capital structure is likely to consist mainly of warrants that have strike prices equivalent to at least one full recovery for the notes of other mortgages.

Notes on Breakeven Point

With minimal interest rates going forward, it looks like Denbury may be able to reach cash flow from the breakeven while holding production at around $ 45 WTI oil. High $ 40 WTI oil may be needed to provide some funding for the CCA project in this case.

Denbury's post-restructuring points will be greatly improved by eliminating most of the interest expense. The estimated reduction in interest costs would reduce Denbury's oil production point by around $ 10.

Conclusion

Denbury Resources appears likely to restructure after skipping a small $ 8 million interest payment on convertible notes. It also pulled $ 200 million into its credit facility just before skipping that payment to give itself a large amount of cash to get through the restructuring process.

Denbury & # 39; s restructuring is likely to result in second-lien notes ending up with almost all of Denbury & # 39; s new equity. Denbury would be relatively healthy after restructuring with only a modest amount on loans and financing debt. Lowered interest costs would reduce the estimated oil production point to around $ 45 WTI oil.

Denbury's common stock is a sale at the current level. In restructuring, the company's current equity is expected to receive anywhere from 0% to 3% of new equity (with 0% as a significant probability). Getting 3% of new equity would make today's shares worth around $ 0.04 each.

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Disclosure: I / We have no positions in any listed shares and no plans to start any positions over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than Seeking Alpha). I have no business relationship with any company mentioned in this article.


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