Debt swaps become a tough sell for cash-strapped U.S. energy firms
By Jessica DiNapoli
NEW YORK (Reuters) - Highly-leveraged U.S. energy companies are struggling to carry out debt swaps as part of their survival strategy because plummeting oil and gas prices make investors either avoid such deals or demand tougher terms.
Last year, at least 10 exploration and production companies, including California Resources Corp CRC.N, managed to ease financial pressure by persuading investors to accept some losses on their bond holdings in return for new debt that often matures later and offers better collateral.
Yet since prices tumbled further early this year, investors have grown more worried that some firms may not survive the rout. They see no point in accepting debt with potentially better collateral if it could mean nothing once the firm hits the wall.
The deepening slump also means that producers need to offer more attractive terms - higher interest payments and more collateral - to win over investors and avoid the brutal equity wipeout that happens in most bankruptcies.
"Investors are less desperate now since they've already taken a lot of the pain," said Roopesh Shah, global chief of Goldman Sachs' restructuring group.
"They have less downside they're trying to protect," he said. Shah said debt exchanges were still viable, but needed to offer better protection and potential gains for investors.
That is a tall order for producers, which must conserve cash to make it through the price slump, and whose ability to issue new debt is limited by provisions in bond documents that tie debt to commodity prices.
Pennsylvania-based Eclipse Resources Corp (ECR.N: Quote) that acquires and develops oil and natural gas properties in Ohio, canceled a debt exchange launched in January. Denbury Resources Inc (DNR.N: Quote), a Texas company with operations in the Rocky Mountains and along the Gulf of Mexico Coast, pulled a debt swap even after sweetening the deal for investors. Continued...