Yuma Energy (YUMA) Stock Rockets On Third Party Debt Purchase

Yuma Energy YUMA Stock News

Yuma Energy Inc (NYSEAMERICAN: YUMA) is rocketing this morning, trading on gains of more than 130% early on. The gains come after the company announced that Red Mountain purchased its secured debt. Here’s what’s going on and why it’s important:

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YUMA Stock Rockets On Third Party Debt Purchase

In a press release issued early this morning, Yuma Energy said that an affiliate of Red Mountain Capital Partners has purchased all of its outstanding senior secured bank debt. The purchase included all related liabilities, totaling about $35 million.

Red Mountain purchased the debt from the company’s lending group, led by Société Générale. All in all, the deal included a credit facility of $32.8 million, plus accrued interest of $1.3 million, and the release or purchase of losses associated with the company’s prior hedging arrangements, coming to a total of $1.1 million.

YUMA said that it and Red Mountain have signed a non-binding Letter of Intent, outlining terms that the parties expect to pursue in an effort to restructure the comapny’s balance sheet and position it for growth.

According to the letter of intent, Red Mountain would enter into a forbearance agreement surrounding the senior secured debt. The LOI also suggests that Red Mountain may fund  certain expenditures on a senior secured debt basis.

The two companies plan to work toward a restructuring that will be approved by the Board of Directors at YUMA by September 30, 2019. It is expected that, if the agreement is reached, the transaction will close by the end of the year.

Management at Yuma Energy said that it will work to reduce other liabilities on its balance sheet. Management also is working to meet all requirements for continued listing on the NYSE American stock exchange.

The comapny is also expecting for Red Mountain to be given the right to appoint up to four new directors to the Board at YUMA.

Importantly, toward the end of the message, YUMA said that it expects for part of the agreement will require YUMA to seek to merge with a third party or acquire assets of a scope and size to provide for the profitability and growth of the company.

In a statement, Anthony Schnur, Interim CEO and Chief Restructuring Officer at YUMA, had the following to offer:

We are pleased to have the opportunity to work with Red Mountain in an effort to realign our outstanding debt with the combined goal of establishing a meaningful path forward for the Company. This is the first step toward strengthening our capital base, improving our liquidity and positioning the Company to pursue growth opportunities.

Final terms and results of any restructuring will be negotiated as soon as practicable with the mutual goal of significantly reduced leverage and enhanced flexibility by the end of 2019. While there is much work to be done to accomplish the plan as set out, we are working diligently to restructure the Company into a financially sustainable organization on which we can deliver shareholder returns.

Why Investors Are So Excited

It’s no secret that Yuma Energy was facing some serious financial troubles. With Red Mountain deciding to purchase the company’s senior secured indebtedness, a light is starting to shine at the end of the tunnel.

In order for YUMA to see growth, it needs to restructure debt and it needs to create a solid plan to reach profitability through potential mergers and acquisitions. With this debt purchase, it looks like that’s exactly what’s going to happen.

Moreover, the fact that Red Mountain will likely appoint four new members to the Board and push for positive change, there’s a lot to look forward to ahead.

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