According to Debtwire, E&P company Lonestar Resources has agreed upon a restructuring agreement between the various creditors of the company in which the unsecured debt holders will gain “the bulk” of the equity going forward. The WSJ says $390mn in debt and preferred will be written off in the arrangement. The BDC Credit Reporter last wrote about Lonestar Resources on July 6, 2020 when the company missed an interest payment.
The only BDC with exposure remains FS Energy & Power, with $23.2mn invested in the junior debt, which was valued at $2.4mn as of June 2020. The debt was still accruing income at that point. We expect the debt is now on non-accrual and will be converted into non-income producing equity in return for a small stake. Some ($2.5mn) of annual investment income will be lost. It’s hard to estimate what the final value of the capital will be, but is likely to be close to the June number, which means FS Energy will b e booking a ($20mn) realized loss.
FS Energy has been involved with Lonestar since 2014, according to Advantage Data. Values have fluctuated all over the place all over those six years but the latest drop in value began pre-Covid in the IIIQ 2019 and has just gotten worse and worse with every quarter. If nothing else this restructuring creates some hope that the business can continue operating and – at some time – the BDC might recoup some of its capital. That day, though, could be many years away.