California Resources taps investment bank to test market appetite for secured debt issuance - Debtwire

California Resources taps investment bank to test market appetite for secured debt issuance

20 September 2017 - 12:00 am

California Resources is working with investment bank Goldman Sachs to lead a liability management transaction aimed at freeing up some of its secured debt capacity and issuing a new term loan, said two sources familiar with the matter.


Management noted on the company’s recent 2Q17 call that the issuer has between USD 800m – USD 900m of secured debt capacity. However, the act of tapping that basket would take a circuitous route, requiring an amendment from existing senior lenders.


“The subtlety is it would likely involve [lenders’] approval to some extent […], so it’s not as easy to accomplish as just straight issuance of the debt,” said CFO Marshall D. Smith during the 2Q17 earnings call. “So there is involvement of others in the capital structure along the way.”


Among the strategies contemplated by the company is refinancing its revolving credit and also issuing a new term loan that could take out its first-out credit facility which sits pari pasu with the revolver. A second step of the liability management exercise would involve issuing a new term loan that would either sit behind the company’s first lien second-out USD 1bn term loan issued in 2016, or could even be sliced in between the first-out term loan and the second-out TL, said sources. However, no terms have been solidified and the structure of the new financing remains in flux.


“They could also use the capacity to try to take out the unsecured or second lien bonds at a big discount by threatening them with the risk of getting primed with senior debt to force them into a coercive exchange,” said one of the sources familiar.


The company’s USD 8% 2.25bn second lien bonds due 2022 traded at 61.25 today up from 59.25 on 19 September, while its USD 193m 6% senior unsecured notes due 2024 traded at 43 today up from 41 on 14 September, according to MarketAxess.


Management said on the 2Q17 call with investors that it prefers to deal with the “balance sheet in order of maturity to minimize overall interest burden and to ultimately extend the bank facility.”


The company’s USD 1.98bn first-out credit facilities comprising a USD 1.4bn revolver and USD 584m term loan mature at the earlier of November 2019 and the 182 day prior to the maturity of the company’s USD 165m 5% senior unsecured notes due 15 January 2020 to the extent that more than USD 100m of such notes remain outstanding at such date.




The company ended 2Q17 with a debt balance of USD 5.2bn, down from USD 5.9bn a year ago, reflecting the company’s efforts to reduce its debtload. During the first quarter of the year, the company purchased USD 28m of its 2020 notes for USD 24m of cash. This follows on the footsteps of the company’s earlier maneuvering in 2015 when it repurchased USD 33m of the 2020 notes for USD 13m of cash. The next year in 2016 the comapny repurchased over USD 1.5bn of the unsecured notes using USD 750m drawings under its revolver and cash from operations. The company also exchanged 3.4m common shares for unsecured notes in a principal amount of over USD 100m.


The issuer had USD 9m of cash as of 30 June and USD 437m of available borrowing capacity under its 2014 first-out credit facilities. The borrowing capacity is subject to a covenant that requires the company to maintain a minimum monthly liquidity of USD 250m. The borrowing base under the 2014 first-out credit facilities was reaffirmed at USD 2.3bn in May and will be redetermined in November.


The company reported 2Q17 adjusted EBITAX of USD 158m, just shy of the USD 160m reported during the same period last year. Net loss narrowed to USD 47m in 2Q17 from USD 140m in 2Q16.


Calls to GS and California Resources were not returned.


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