Legacy Reserves (LGCY) Stock Climbs On Another Forbearance Agreement

Legacy Reserves LGCY Stock News

Legacy Reserves Inc (NASDAQ: LGCY) has been dealing with a financial headache brought on by low oil prices for some time. In fact, things have gotten so rough for the company that it recently announced that it would be filing bankruptcy after announcing two forbearance agreements.

Of course, the bankruptcy announcement caused the stoc to tank, but that’s not the case today. Today, LGCY stock is making a run for the top, up more than 20% after the company announced a third round of forbearance agreements. Here’s what’s happening:

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LGCY Stock Gains On Forbearance Agreement News

In a press release issued early this morning, Legacy Reserves announced that it has entered into a third round of forbearance agreements. The agreements were signed with its reserve based revolving credit facility lenders and lenders under its second lien term loan.

Today’s announcement follows two previous announcements of forbearance agreements signed with the same lenders. The first of these expired on June 7, 2019 and the second expired on June 12, 2019.

Nonetheless, LGCY said that the new forbearance agreement will ensure that these lenders avoid remedies available to them associated with default arising from the maturity of the revolving credit facility. The agreements also stop any action being taen from the company not maing interest payments due on June 3, 2019.

This round of forbearance agreements, like previous announcements will only protect the company for a short period of time. In fact, they will expire on June 18, 2019 at 11:59 pm.

Be Very Careful Here

While the news that lenders for LGCY will forbear any remedies associated with default is positive, if you’re going to make a move here, make sure that you’re very careful about what you do.

Due to low oil prices, Legacy Reserves and several others in the space have been struggling. In fact, the declines led Legacy to look for strategic alternatives, leading to hopes that the company would be acquired.

Unfortunately, the strategic alternatives exploration turned up no acquisitions, mergers or other value-add transactions. Instead, at the end of the review, the company decided to file for bankruptcy.

There are few points in time when a bankruptcy actually works out to benefit shareholders. In my view, this isn’t going to be one of those times. While there is long-term benefit in survival, chances are that LGCY stock is going to be in choppy waters for some time.

Should the company successfully emerge from the bankruptcy, which I believe is highly likely, it will have access to the funds that it needs in order to recover.  Nonetheless, this is going to be a highly volatile play on both the up side and the down side for some time. So, if you’re not comfortable with heavy risk, this isn’t one that you want to play with!

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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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