Ultra Resources: File Chapter 11

Ultra Petroleum, which is owned by Ultra Resources Inc., filed for Chapter 11 on May 14, 2020. The BDC Credit Reporter had anticipated as much a month ago, on April 16. As is de rigueur in this industry, the only parties willing to support the gas driller were its existing lenders who will be swapping a huge amount of debt for equity and the hope that the business can yet be revived. According to the Wall Street Journal, informed by court filings “Ultra’s existing lenders are providing a $60 million loan to the company when it exits bankruptcy. The company also plans to raise $85 million from senior lenders through a rights offering, which will fund recoveries for the company’s other creditors“. About 80% of the company’s debt is to be written off/swapped.

The only BDC lender remains non-traded FS Energy & Power. Since we last wrote, though, the total amount invested by the BDC has risen slightly now that IQ 2020 results are out: to $57.3mn at cost and $32.9mn at FMV. We’re not quite sure what happens to the debt the BDC holds going forward but some sort of realized loss is coming – probably ($25mn-$30mn). Income, too, will be interrupted to the tune of $2.7mn. The parties hope to be out of bankruptcy within 3 months with their packaged plan.

For our part, the BDC Credit Reporter will be downgrading the company to a CCR 5 – non performing – status – from CCR 4. We’ll also remove Ultra from the Weakest Links list now that the default that we anticipated has occurred. Management will blame the market conditions brought on by Covid-19 but Ultra was first written about on these pages in mid-2019. All the debt on the books made the company a bankruptcy waiting to happen. The current crisis has only accelerated the inevitable and made more difficult the recovery. Although we don’t know the exact amount of the likely realized loss to come, the investment also demonstrates that a so-called “First Lien secured loan” is no protection against a major loss in the oil space. For FS Energy this has been a lesson learned and relearned in recent months.