Big debts are coming due at Quicksilver Resources
07/25/2014 2:31 PM
07/25/2014 2:37 PM
Pressure is mounting on Fort Worth-based Quicksilver Resources to refinance $350 million of notes and avert a cascade of maturing debt it has little chance of repaying as the unprofitable natural-gas producer’s cash dwindles.
The company, which operates in the U.S. and Canada, must refinance or retire at least $250 million of its 7.125 percent senior subordinated bonds by Jan. 15, 2016, to avoid triggering early maturities on more than $1 billion of higher-ranked debt, according to credit agreements. With analysts projecting losses this year and next, Quicksilver will burn through its cash in less than 12 months, according to data compiled by Bloomberg.
Quicksilver, which produced natural gas in the Barnett Shale, has suffered from a 46 percent decline in gas prices since selling the subordinated bonds in 2006 and has few avenues to refinance securities now yielding 17.65 percent. While junk-rated companies have borrowed record amounts of money as central banks have held down interest rates, only one U.S. company has issued debt with a yield of 15 percent or more in the past three years, data compiled by Bloomberg show.
“They need to do something sooner rather than later,” said Matthew Duch, lead money manager at Calvert Investments, in Bethesda, Md., which oversees about $12 billion including Quicksilver bonds. “If they wait, they will be running out of options.”
Quicksilver is “currently evaluating our options to refinance the 7.125 percent notes,” spokesman David Erdman said in an e-mail.
In the last couple of years, Quicksilver has been selling assets to raise cash. It sold 25 percent of ist Barnett Shale holdings to Tokyo Gas in April 2013 for $485 million, about a quarter of its leasehold in the Alliance area to the Italian oil giant Eni and properties in Montana.
Quicksilver’s business has been hurt by depressed natural gas prices. Sales peaked at $944 million in 2011, and analysts project they will fall to $463 million this year and slightly below that in 2015. Net income, which was $162 million last year, is forecast to turn to an $87 million loss this year, followed by a $59 million deficit in 2015.
Chief Financial Officer John Regan said on a May 6 conference call to discuss first-quarter results that Quicksilver may use equity to help lower its $1.99 billion in total debt. Since then, the shares have fallen 22 percent to $2.08 at 9:48 a.m. in New York.
Without refinancing the subordinated notes by the deadline, $803 million of second-lien bonds and loans due 2019 would instead mature in January 2016. That would in turn trigger a springing maturity on a revolving loan, which would come due on October 2015 instead of April 2016. The revolver had $207.7 million outstanding on March 31, according to a May 12 regulatory filing.
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