Natural gas producer Gulfport Energy files for Chapter 11

BY Fraser Tennant

In a bid to reduce its debt by approximately $1.25bn, natural gas and oil company Gulfport Energy Corporation, along with its wholly owned subsidiaries, has filed for Chapter 11 bankruptcy protection in order to implement a restructuring support agreement (RSA).

Attached to the RSA is a pre-negotiated’ restructuring plan that will strengthen Gulfport’s balance sheet, significantly reduce its funded debt, and lower ongoing operational costs. The company also plans to  issue $550m of new senior unsecured notes under the plan to existing unsecured creditors of certain Gulfport subsidiaries.

In addition, Gulfport has secured $262.5m in debtor-in-possession (DIP) financing from its existing lenders under its revolving credit facility, including $105m in new money that will be available upon court approval. The financing is structured to fund Gulfport’s ordinary course operations during the Chapter 11 proceedings, including employee wages and benefits and payments to suppliers and vendors.

Gulfport Energy is one of a growing number of US oil and gas companies that have filed for Chapter 11 bankruptcy protection after the coronavirus (COVID-19) pandemic deepened their struggle with low prices and excessive debt.

“Despite efforts to streamline our business, our large legacy debt burden in addition to significant legacy firm transportation commitments created a balance sheet and cost structure that was unsustainable in the current market environment,” said David M. Wood, president and chief executive of Gulfport Energy. “After working diligently to explore all strategic and financial options available, Gulfport’s board of directors determined that commencing a Chapter 11 process is in the best interest of the company and its stakeholders.”

Headquartered in Oklahoma City and employing 259 people, Gulfport Energy is an independent returns-oriented, gas-weighted, exploration and development company, as well as being one of the largest producers of natural gas in the US.

“We expect to exit the Chapter 11 process with leverage below two times and rapidly deliver thereafter due to a much-improved cost structure driven by reduced legacy firm transport commitments and costs,” continued Mr Wood. “These improvements will significantly improve our ability to generate cash flow and value for our stakeholders going forward.”

Furthermore, Gulfport hopes to safeguard its future with the help of commitment from its existing lenders to provide $580m in exit financing upon emergence from Chapter 11.

Mr Wood concluded: “We hope to move through the restructuring process quickly and efficiently and emerge as a stronger company positioned for future success.”

News: Natural gas producer Gulfport Energy files for bankruptcy

Social bond issuance could approach $100bn in 2020, says new report

BY Fraser Tennant

In response to economic shocks caused by the coronavirus (COVID-19) pandemic, governments, supranationals and corporations have accelerated the issuance of social bonds, according to a report published this week by S&P Global Ratings.  

Issuance of the bonds – defined as use-of-proceeds bonds that raise funds for new and existing projects that address or mitigate a specific social justice issue such as employment, education, housing and healthcare – has risen fourfold so far this year from the 2019 level to $71.9bn.

Furthermore, S&P projects social bond issuance could approach $100bn this year – potentially becoming the fastest-growing segment of the sustainable debt market. Additionally, S&P expects to see an increase in investor interest in social bonds growing across both the public and private sector.

“Economic shocks from the COVID-19 pandemic have widened existing inequities around the world,” said Lori Shapiro, credit ratings analyst at S&P Global Ratings and primary author of the report. “Poorer people, minorities, and women are suffering disproportionately from growing health, housing, income, and education gaps under measures to contain COVID-19 that could set them back for years to come. This has led to calls for greater social justice in dealing with the pandemic.”

Historically, interest in social bonds from investors, governments and companies has been limited, with social bond issuance comprising only 5 percent of all 2019 sustainable bond issuance. However, since the outbreak of COVID-19, structural inequalities have been placed under the spotlight and calls for social justice have intensified.

This increase in demand is likely to be met with greater supply from a wider range of issuers to fund a variety of projects, including access to safe and affordable housing, improvements to public health infrastructure, and employment or income generation.

Ms Shapiro concluded: “Sustainable finance debt, and particularly social bonds, will continue to serve as a tool in the economic fight against COVID-19 and the social inequalities and justice issues that have proliferated as a result.”

News: Sustainable Finance Addresses Social Justice As COVID-19 Raises The Stakes

Traton and Navistar agree $3.7bn deal

BY Richard Summerfield

Traton SE, a subsidiary of Volkswagen Group, has agreed to acquire the remaining stake in Navistar International Corp it does not already own, for $44.50 per share. The deal values the company at around $3.7bn.

The deal, which is expected to close in mid-2021, has been approved by Traton’s executive board and supervisory board. The deal has also been approved by Volkswagen’s board.

Traton, which was established in 2018 after the Volkswagen Group separated its truck and passenger car operations, already owned a 16.8 percent stake in Navistar. The Volkswagen group will provide Traton with a loan of $3.9bn, repayable over 12-18 months, to fund the deal.

“Today’s announcement accelerates our Global Champion Strategy by expanding our reach across key truck markets worldwide, including scale and capabilities to deliver cutting-edge products, technologies and services to our customers,” said Matthias Gründler, chief executive of Traton. “Together, we will have an enhanced ability to meet the demands of new regulations and rapidly developing technologies in connectivity, propulsion and autonomous driving for customers around the world.”

He added: “Navistar has been a valuable partner, and we are confident this combination will deliver compelling strategic and financial benefits, create enhanced opportunities for both Navistar and TRATON, and best position us to drive sustained value in the evolving global commercial vehicle industry.”

“This transaction builds upon our highly collaborative and successful strategic alliance and further enhances the growth trajectory of the combined company, while delivering immediate and substantial value to our shareholders,” said Persio Lisboa, president and chief executive of Navistar. “We look forward to continuing to work with the TRATON team to create opportunities for our employees and provide an outstanding experience for our customers and dealers through best-in-class products, services and technologies.”

The agreement brings to an end a period of uncertainty regarding the future of Navistar. In September, Traton offered $43 per share, but Navistar International’s board of directors rejected the bid on grounds that it significantly undervalued the company. Navistar has since accepted Traton’s sweetened offer, and the company’s largest shareholders, Carl Icahn and MHR Fund Management, have also pledged their support for the deal.

News: Volkswagen truck unit Traton finalises $3.7 billion Navistar acquisition deal

Ant Group’s record IPO suspended

BY Richard Summerfield

The $37bn initial public offering (IPO) of Ant Group was suspended at the eleventh hour on Tuesday in a move which dealt a significant blow to the financial technology firm founded by billionaire Jack Ma.

The company’s listings in Shanghai and Hong Kong were suspended by Chinese authorities citing ‘major issues’ with the filings. The Shanghai Stock Exchange said in a statement that Mr Ma had been called in for “supervisory interviews”, and that a change to the regulatory environment meant Ant no longer met “listing conditions or information disclosure requirements”.

The Hong Kong exchange then reported that Ant had decided to suspend its planned listing. Ant was due to sell about 11 percent of its shares across the two stock exchanges.

That the IPO was called off so late in the process is remarkable given the potential size of the filing. Ant would have recorded a possible market valuation of more than $300bn at its IPO price, placing it among the most valuable companies in the world.

Ant was spun out of Alibaba in 2011, seven years after its parent company was founded. Alibaba acquired 33 percent of Ant’s value in 2018 ahead of its planned IPO. At the time, Ant was valued at around $60bn.

Since the company was spun out, it has enjoyed a meteoric rise. Ant runs Alipay, the leading online payment system in China, which has eclipsed cash, cheques and credit cards. Alipay has over 1 billion annual active users and over 80 million active merchants on the platform.

Alibaba, which had previously broken the record for biggest stock market debut in 2014, saw its share price fall 9.6 percent in Hong Kong trading on Wednesday, following an 8.1 percent fall in New York on Tuesday after the suspension was announced.

News: China slams the brakes on Ant Group’s $37 billion listing

Pacific Drilling opts for Chapter 11

BY Fraser Tennant

Due to significant disruption in the offshore drilling market caused by the coronavirus (COVID-19) pandemic, offshore ultra-deepwater drilling company Pacific Drilling has filed for Chapter 11 bankruptcy protection.

This is the second time the company has filed for Chapter 11 in less than three years, having previously emerged from bankruptcy in late 2018.

Alongside the filing, the Luxembourg-based Pacific Drilling and certain of its domestic and international subsidiaries have entered into a restructuring support agreement (RSA) with an ad hoc group of the largest holders of its outstanding bond debt.

The RSA is intended to eliminate the company’s approximately $1.1bn in principal amount of outstanding bond debt through the cancellation and exchange of debt for new equity. Pacific Drilling expects to emerge from Chapter 11 by the end of the year with access to new capital in the form of an $80m exit facility and with approximately $100m of cash and cash equivalents on the balance sheet.

“After spending months evaluating options for addressing our long term financial needs in light of challenging market and operational conditions, we are pleased to reach agreement that paves the way for an expeditious Chapter 11 restructuring process,” said Bernie Wolford, chief executive of Pacific Drilling.

He continued: “This restructuring is intended to enhance our financial flexibility by eliminating our entire prepetition debt and cash interest burden. We expect to emerge from this process in a stronger position to compete in today’s challenging, lower-commodity-price environment.”

Since the beginning of 2020, the global health crisis caused by COVID-19 and the resulting oil supply and demand imbalance have caused significant disruption in world economies and markets, including a substantial decline in the price of oil. The impact of these market conditions on Pacific Drilling’s business has been direct and significantly negative, rendering its current capital structure unsustainable over the long term.

However, with approximately $120m of cash and cash equivalents, and seven of the most advanced high-specification drillships in the world, Pacific Drilling intends to continue its worldwide operations as usual, deliver services for existing and prospective clients and, subject to court approval, pay all obligations incurred during the Chapter 11 case.

Mr Wolford concluded: “I appreciate the ongoing support of our employees, clients and vendors as we complete this accelerated restructuring process. We remain committed to delivering the safest, most efficient and reliable deepwater drilling services in the industry.”

News: Pacific Drilling files for Chapter 11 to eliminate $1.1 billion of debt