Legacy Reserves (LGCY) Stock Tumbles On Bankruptcy

Legacy Reserves LGCY Stock News

Legacy Reserves Inc (NASDAQ: LGCY) has seen a few strong sessions in the market as of late as forbearance agreements led to hopes that the company would reach an agreement, potentially to be acquired. While an agreement was announced early this morning, it wasn’t what investors wanted to see.

After reaching an agreement with its lenders, LGCY will be filing bankruptcy. Of course, this prompted a sell off in the stock, which is currently trading on losses of more than 53%. Here’s what’s happening:

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LGCY Stock Tumbles On Bankruptcy Plans

In a press release issued early this morning, Legacy Reserves announced that it has reached a restructuring support agreement. The agreement was signed with its reserve based revolving credit facility lenders and its second lien term loan lenders.

While the proposed restructuring is expected to significantly reduce the company’s debt, it also means that LGCY will be headed to bankruptcy court. In the release, the company said that it will file voluntary petitions for reorganization in the United States Bankruptcy Court.

Throught the chapter 11 bankruptcy, the lenders have agreed to the following:

  1. Significant de-leveraging of the Company’s capital structure by over $900 million. This includes the infusion of at least $200 million in equity capital through a rights offering and a committed equity backstop. This ultimately means that dilution is on the way as offerings are ahead.
  2. Payment in full of the company’s other secured creditors, tax and other priority claimants, trade creditors and employees.

Of course, considering that the transaction is going to the bankruptcy court, it is contingent upon court approval. The company said that there are other conditions of the transaction set forth in the documentation, but was unclear in the press release as to what these conditions may be.

However, there’s a good chance that this plan will require further approval from investors. In fact, LGCY said that it is currently in discussions with advisors for a group of its noteholders regarding terms that will win their support of the Restructuring Agreement.

As is normally the case in bankruptcies, the company said tha tit plans to operate business as normal without disruption to vendors, partners or employees. It is expected that the company has the liquidity to meet its obligations in order to do so through the bankruptcy process.

This liquidity will come from the refinance of portions of the existing credit facility, which is expected to come with $100 million in new funding to support operations through the restructuring process. Once the company emerges from the plan, it will gain access to up to $500 million through a senior secured asset-based lending credit facility.

In a statement, Dan Westcott, CEO at LGCY, had the following to offer:

We explored a wide variety of alternatives to address our balance sheet and looming bank maturity during a sustained downturn in oil and gas prices. After concluding this broad process, we believe that the financial restructuring negotiated with our creditors provides the best path forward for the Company. Through the proposed terms of the plan of reorganization, we believe our right-sized balance sheet will enable us to successfully compete in the current environment.

I want to express my gratitude to the employees for their continued dedication and hard work, and to our service providers, business partners and other stakeholders for their ongoing support during this time. We are grateful to GSO Capital Partners LP, who, as Plan Sponsor, has committed to ensure that at least $200 million of new equity is invested into the Company. Following the negotiated restructuring, we look forward to having substantially less debt and significantly enhanced prospects for our Company, our employees and our future stakeholders.

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What Drove LGCY To Bankruptcy?

Ultimately, the pain felt by Legacy Reserves is the result of the down turn in oil prices. Unfortunately, the stock has been on a downtrend since the rebound in oil prices seemed to hit a wall, leading to harsh declines ove the past several months.

This continued weakness in the value of oil has led to financial struggles for LGCY that the company just couldn’t seem to get over. Unfortunately, with so much uncertainty in the oil industry at the moment, coupled with the debt that the company amassed as it tried to get through the lulls in the oil market, proved to be too much for a suitor to want to take on. As such, bankruptcy proved to be the only option.

What Are Your Thoughts?

What are your thoughts on the LGCY bankruptcy? Join the discussion in the comments below!

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