Denver-based Warren Resources Inc. is fast approaching a deadline to restructure its debt obligations with lenders and investors outside of court before it's forced to seek bankruptcy protection, the company warned again on Wednesday.
The announcement marked the third time since February that the company has warned of bankruptcy proceedings (seeShale Daily, March 14; Feb. 9). Most of its administrative focus in recent months has been on a "consensual restructuring" with stakeholders. Warren said the lender under its first lien credit facility has made a proposal for a "viable post-restructuring" capital structure that would deleverage the company by converting a "substantial amount" of its debt to equity.
The company said it has presented the proposal to the lender under its second lien credit facility and to a majority of those that hold its unsecured senior notes. But it has thus far failed to bring all parties into an agreement. Warren said it is now evaluating the ways it can expedite such an agreement, or pursue a voluntary bankruptcy proceeding.
"We are hopeful that Mr. Watt will be able to bring all parties together to complete an out-of-court restructuring or a pre-packaged or pre-negotiated bankruptcy filing," said Chairman Dominick D'Alleva of CEO James Watt, who has also been appointed as its chief restructuring officer. "But if our creditors fail to reach a timely agreement, we look to Jim's leadership and extensive restructuring background to guide us through a bankruptcy proceeding on terms that are acceptable to our first lien lender and that preserve and maximize value available for our stakeholders."
Warren defaulted on a $7.5 million interest payment for its 9% senior unsecured notes that was due on Feb. 1, saying consistently low oil prices and a need to rework its debt led to the missed payment. Noteholders can now demand full payment of the $167.3 million outstanding and both the company's first and second lien credit facilities have been thrown into default as a result. Those lenders could also require that Warren's obligations be met immediately, but no such requests have been made.
First and second lien creditors, along with investors, held about $454 million in Warren debt and senior unsecured notes as of March 31. The company's cash position also has dwindled from $26.8 million at the end of last year to about $17 million.
The company, which has idled its drilling program and closed offices in New York City and New Mexico, has operations in the Marcellus Shale of Northeast Pennsylvania, waterflood oilfield recovery operations in California and coalbed methane assets in Wyoming. It must provide a restructuring update to the Nasdaq Hearings Panel by April 20 regarding its stock listing (see Shale Daily, Oct. 1, 2015).
"We must make a determination in the very near future as to whether this path is achievable, and if not, we will prepare to complete the restructuring process through a bankruptcy," Watt said. "In my estimation, a bankruptcy proceeding without the consent of both our lenders under our secured credit facilities, and the investors in our unsecured notes, will likely result in holders of our unsecured notes, and even our second lien lender, having their claims completely wiped out."