Bankrupt Oil Company Trolls Its Banks, Says They May Fail Too
With US shale companies facing a tsunami of defaults, some companies took the initiative and filed for bankruptcy ahead of the (viral) curve, so to speak, well before of the current corona/crude chaos.
One such company is EP Energy, an El Paso Corp spinoff which filed for bankruptcy in 2019 as a result of the shale sector’s renewed slump (and this was when oil was still above $50). So with its its fate already in limbo after a busted rescue deal, and potential liquidation looming as a result of oil prices that just insultingly low, the company added a new possibility of what could go wrong next: the company’s bankers may follow it down the bankruptcy abyss.
In its latest annual report filed late on Wednesday, Bloomberg uncovered that among EP’s list of risk factors the company also included the future of its debtor-in-possession loan which is EP’s primary source of cash, and – in an a delightful case of suicidal snark, the company wondered if that might be cut off, along with funds that would enable it to exit bankruptcy, if its banks were themselves to fail.
“Our primary source of liquidity beyond cash flow from operations is our debtor-in-possession, or DIP Facility. At February 28, 2020, we had $130 million outstanding under the DIP Facility. We have also received an underwritten commitment from the DIP Lenders to convert their DIP Loans and their remaining claims under the RBL Facility into an approximately $629 million exit senior secured reserve-based revolving credit facility.” EP Energy wrote.
“Although we believe that the banks participating in the DIP and Exit Facilities have adequate capital and resources, we can provide no assurance that all of those banks will continue to operate as going concerns in the future, or continue to participate in the facility.“
In other words, it’s gotten so bad even bankrupt shale companies are now mocking their own banks.
While EP didn’t name which banks it was trolling, a quick look at the company’s DIP loans reveals the following cast and crew of usual DIP lending suspects, including JPM, Citi, BMO, RBC, Credit Suisse and several other banks. And since companies – even bankrupt ones – tend to be very careful in what statements they put in their public filings, one almost wonders what EP knows that others don’t.
Even more amusing, this mini soap opera is taking place as EP tries to put together a new plan to exit from Chapter 11 after creditors Apollo Global Management and Elliott Management backed away from a court-approved plan that would have cut more than $3 billion of debt from its balance sheet; a plan that would need the blessing of its current bank syndicate whose appreciation for such “suicidal snark” may be overestimated.