American Eagle Energy Files For Bankruptcy Protection

| About: American Eagle (AMZG)

Summary

American Eagle Energy filed for Chapter 11 Bankruptcy Protection on May 8th.

I expect current equity holders to be wiped out as a part of the bankruptcy filing.

The bondholders will likely have to take a loss and if the company comes out of re-organization, the bondholders will have a substantial say about the future.

American Eagle Energy (NYSEMKT:AMZG) filed for bankruptcy protection last Friday. I have previously written about the struggles that the company was facing, that article can be found here. In the face of a dwindling cash supply and a large payment to bondholders due, American Eagle was unable to meet its obligations moving forward. The company has now officially filed for chapter 11 bankruptcy protection. Here is a link to the filing.

Key Parts of the Filing

In the filing, American Eagle lists its assets at $211,822,000.00 and its debts at $215,217,000.00. At the time of its bankruptcy filing, the company listed 30,448,714 shares outstanding. This will also have an effect on its major shareholders. Listed below are the shareholders that are listed in American Eagle's bankruptcy filing as owning more than five percent of the company:

  • Power Energy Partners-7.39%
  • Wellington Management Group-7.41%
  • Blackrock, Inc.-5.9%

The company has a multitude of unsecured debt that it lists, which could have an impact on its suppliers. However, most of these suppliers appear to be private companies so the impact for the stock market should be minimal.

How American Eagle Energy Ended Up in Bankruptcy

American Eagle Energy embarked on an ambitious expansion plan, but it seems to have backfired. The company took on a large amount of debt through a bond issuance, issuing $175 million worth of bonds. Coming due was the company's first interest payment of $9.8 million dollars. Unfortunately, between the issuance of the bonds and the time when the first payment came due, the money had been used in order to embark on an ambitious expansion plan.

We got our first hint that something could be wrong when the company entered into a forebearance agreement with its creditors, which gave American Eagle until May 15th to make the payment. In the face of a dwindling cash reserve, and wells that were not producing at the levels that were predicted, the company was caught in a tough place. The bankruptcy filing represents the end of an era for American Eagle Energy and for the company's shareholders.

What this means for shareholders

For current shareholders, the bankruptcy filing is not good news due to the fact that the bond holders are before the shareholders in line in terms of their ability to get assets. It is also possible that if the company does end up coming out of bankruptcy protection that the bond holders will have a very big part to play in the negotiations regarding what the future of the company will look like. I do, however, expect that the bond holders will be forced to take a substantial haircut on their investment.

Overall, I expect for current shareholders to be substantially wiped out and if American Eagle comes back as a new company, I would expect for bondholders to own a large amount of the new company. It is common in filings like this for the current equity holders to be cancelled; I expect that to happen in this case.

Conclusion

This bankruptcy filing, filed after the close of business on Friday, May 8th, presents the end of a tumultuous journey for American Eagle Energy. The company embarked upon an ambitious plan for expansion, which unfortunately backfired as the company was caught squeezed in between its debt obligations and substantially dropping oil prices. This created a jam that the company did not appear to be able to work its way out of. This filing is not good news for shareholders in the company, but was consistent with the predictions of my article.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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