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Tuesday, February 23, 2016

Oil and Gas Companies Tap Out Revolving Credit to Strategically Weather the Storm

From Forbes:
With capital markets tightening and oil still below $30 a barrel in spite of the deal announced between Qatar, Russia, Saudi Arabia and Venezuela today to freeze oil output at current levels, a growing number of increasingly distressed oil and gas companies are fully drawing the remaining availability of their outstanding revolving credit facilities – often in the hundreds of millions of dollars – to provide themselves with options in an impending financial restructuring. 
“The companies are making these drawdowns now, everyone realizing that cash is king and possession is nine-tenths of the law, and it’s better to have cash in the bank in place and extend that runway than not,” says Becky Roof, a managing director at the global consulting firm AlixPartners. 
This month alone Chaparral Energy, Midstates Petroleum and LINN Energy – three oil and gas companies with operations largely in the South Central U.S. – have drawn down the remaining amounts on their revolving credit facilities. Midstates and LINN have publicly traded equities at pennies, Midstates at $0.18 trading under the MPOY ticker having moved down to the OTC Pink Sheets recently, and LINN under the LINE ticker on the Nasdaq at $0.38 both as of 1:38 p.m. EST. In a situation that has already resulted in bankruptcy, offshore drilling company Paragon Shipping, which drew down the remaining balance on its revolver in September, filed for bankruptcy on Sunday without debtor-in-possession, or DIP, financing, which is usually required if a largely insolvent corporation is going to restructure in court.

“One reason to do it is to have free DIP financing,” says Damian Schaible, a partner in Davis Polk’s insolvency and restructuring group.
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