Bellatrix Exploration: Assets Sold

The long and winding road for Canadian oil and gas company Bellatrix Exploration seems to have reached an end. In a press release on April 24, 2020 the company announced its sale to a subsidiary of Return Energy Inc. “for cash consideration of $87.4 million plus the assumption of certain liabilities at closing”.  This follows a sales process conducted under court supervision in Canada. The BDC Credit Reporter has been writing about Bellatrix since June 2019 when the company completed a restructuring. That didn’t take and Bellatrix was in bankruptcy from December 2019. For all our articles, click here.

You’ll see that since the last time we wrote BDC exposure – all in the FS KKR platform – has increased from $96mn to $111mn. We don’t have the details, but we expect that the incremental monies where a Canadian version of debtor in possession financing and the new monies will likely be repaid in full. Overall, we expect that the three related BDCs involved (which includes publicly traded FS KKR Capital or FSK for a modest amount ) will write off ($96mn). That’s the amount in junior debt and equity owned. However, we’ll need final confirmation when the BDCs involved (which also includes FS Energy and FS KKR Capital II– both non listed) report results, either in the IQ 2020 or the IIQ.

Time for a post mortem, although we may be getting ahead of ourselves and may be unfairly exaggerating the losses the FS KKR organization will be booking. Still, this unfortunate episode does underscore one of the BDC Credit Reporter’s favorite mantras which all BDCs should repeat to themselves regularly: don’t lend or invest in the oil and gas industry. It’s a simple enough dictum and one that many other lenders have learned the hard way in the last 50 years.

We’ve been around since the oil price first jumped up after the Arab oil embargo in 1973 and seen the devastation caused by non-specialized lenders trying to convince themselves that with enough collateral; hedges; field diversification etc. a “safe” loan structure can be arranged in what has proven to be the most cyclical industry one could possibly imagine. KKR will justly point out that this was a credit inherited from GSO Blackstone, which was very bullish on the energy sector before everything fell apart in 2014. Nonetheless, the damage to all 3 sets of shareholders KKR is now in co-captaincy of is severe and – from our perspective – unnecessary.