Beleaguered oil and gas company, Legacy Reserves Inc (NASDAQ: LGCY) is flying early on in the trading session this morning with gains of more than 40%. The gains come after the company announced that it has reached a new global restructuring agreement with its lenders, easing minds with regard to defaults on debts and the coming bankruptcy filing. Here’s what’s happening:
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LGCY Reaches Restructuring Agreement With Lenders
In a press release issued early this morning, Legacy Reserves said that it has executed a global restructuring support agreement with its lenders. In particular, the agreement was signed with lenders of its reserve based revolving credit facility, its second lien term loan lenders and a group of undecured noteholders.
LGCY said that the new agreement will provide it with go-forward liquidity. Moreover, the agreement leads to a right-sized pro form capital structure while minimizing operational disruptcy by making sure that creditors are paid in full.
Importantly, the new agreement includes all tranches of the company’s capital structure on the terms of a pre-arranged plan of reorganization that ALL lenders have agreed to support.
The new agreement sets the stage for a $256.3 million backstopped equity commitment and rights offering, $500 million in committed exit financing from certain existing RBL lenders, the equitization of about $797.2 million of principal outstanding debt, a potential equity investment of $125 million, and payment in full of the company’s trade and other unsecured creditors.
Importantly, while the agreement is definitative, it is still on the edge. After all, the company will need to file petitions with the United States Bankruptcy Court and the Court will need to approve the petitions before anything happens with this agreement.
In a statement, Dan Westcott, CEO at LGCY, had the following to offer:
After exploring all options and months of negotiations, we are very pleased to have reached an agreement for a consensual restructuring with our RBL Lenders, Second Lien Lenders and the Noteholder Group.
We believe that the restructuring contemplated by the Global RSA will provide us with the capital structure and liquidity to compete and grow in today’s challenging oil and gas environment. We plan to continue working with our creditor constituencies to move through the restructuring process expeditiously with minimal operational disruptions.
Why Legacy Reserves Is Feeling Financial Pain
At the end of the day, the financial struggles that Legacy Reserves has been facing have to do with the price of oil. After all, the company’s operations are centered entirely around the production of oil and natural gas.
Considering the long-standing low price of oil and effects that this has had on the natural gas market, the company’s flagship product just isn’t producing the margins that it needs to in order to cover the debt that LGCY has amassed.
The good news is that the bankruptcy seems to be going in the right direction. Recently, LGCY has been overwhelmingly transparent, informing investors of each agreement signed with its lenders, including multiple previously announced forbearance agreements.
Moreover, the new restructuring plan shows that there is light at the end of the tunnel. While the plan includes quite a bit of dilution, it also sets the stage for financial stability once the company emerges for bankruptcy. Suggesting that things may turn around quickly for the company from here.
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What Do You Think?
Where do you think LGCY stock is headed moving forward? Join the discussion in the comments below!
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