California Resources Corp: Restructuring Plan Approved

A bankruptcy judge has approved the restructuring plan agreed between California Resources Corp and its creditors. Now the troubled and highly leveraged energy company is set to exit from bankruptcy protection shortly, only months after filing in July. As previously announced, the restructuring involves a $5bn debt forgiveness in return for equity control of the business by the lenders. Existing public shareholders are wiped out.

For the only BDC involved – non traded Business Development Corporation of America (BDCA) – this means their relationship with the company – which dates back to 2017 – is likely to go on for years to come but in a new form. As of June 2020, the BDC had written down its $10.3mn term loan position by (64%). We expect that whatever realized loss BDCA might book – probably in the IVQ 2020 – will be in the ($6mn-$7mn) range. Any DIP monies advanced in July might be converted to long term financing or repaid.

This is not over for California Resources or BDCA, but the future remains cloudy. We expect that – the restructuring and exit notwithstanding – the investment will remain on the underperforming list for some time yet.