Ultra Resources: Preparing To File Chapter 11

Ultra Resources, which owns Ultra Petroleum, appears about to file Chapter 11. The oil & gas explorer announced IVQ 2019 results that included that death knell to solvency: a “going concern” question mark. Also, the company admitted to not having delivered financial results to its lenders and being in default under its financing arrangements. Worse, the press release included the following:

We expect that we will be precluded from making additional draws on the Credit Agreement unless a waiver is obtained. If we do not obtain a waiver or other suitable relief from the lenders under the Credit Agreement and the Term Loan Agreement before the expiration of a 30-day grace period, an event of default under each of the Credit Agreement and Term Loan Agreement would occur, which would allow the lenders to accelerate the loans outstanding under the Credit Agreement and Term Loan Agreement. At this time, we do not expect to obtain a waiver of this requirement and we do not currently have sufficient liquidity to repay such indebtedness were it to be accelerated”.

There is just one BDC with exposure to publicly traded Ultra Resources, whose stock trades for less than a dime, as we discussed in our prior article: FS Energy & Power. The non-traded BDC has $57.1mn invested in the 2024 Term Loan, with a fair market value of $40.5mn at year-end 2019. The investment has been on the underperformers list since IIQ 2019, with a Corporate Credit Rating of 3. We are downgrading Ultra to a CCR 4 rating, and adding the name to a growing list of (very) likely names to become non-performing. That would cost the BDC $2.9mn in annual investment income. However, some recovery is possible given the senior nature of the debt. The dire state of the oil market, though, does not make us hopeful. We’ll defer any estimate of recovery till we get the dire details from an actual filing.