Denbury Resources: May File Chapter 11

According to a Seeking Alpha article by Elephant Analytics on July 4, 2020 energy company Denbury Resources Inc. is likely to file for Chapter 11 after working out a restructuring plan. The author points to a skipped interest payment on June 30 and the drawing down of the company’s revolver, thus loading up on cash. The SA author believes that a restructuring will result in second lien lenders receiving essentially the entire ownership of the company, with more junior debt and equity holders being wiped out.

There is only one BDC lender in Denbury: non-traded, specialist fund FS Energy & Power. The BDC holds two different tranches of second lien debt, one maturing in 2022 and the other in 2024, with an aggregate cost of $54.1mn. The writing about Denbury has been on the wall for some time and the debt has already been discounted to $12.3mn, a (77%) drop. Now the BDC seems likely to lose ($4.8mn) of investment income and end up with common stock in a largely de-leveraged Denbury.

The BDC Credit Reporter was already rating the company CCR 4. However, we’ve now added the company to the Weakest Links list given that a payment default seems almost certain. We wouldn’t be surprised if we find the BDC has already placed Denbury on non accrual in the quarter ended June 2020. If not, that should occur in the current quarter (IIIQ 2020).

This promises to be yet another significant loss for the $2.5bn FS Energy & Power Fund, which has accumulated total losses both realized and unrealized of ($2.0bn) as of March 31 2020. We’ll circle back if and when a bankruptcy occurs or we hear more from the BDC.