Halcon Resources: Post-Bankruptcy Value Estimated At $8.25 To $11.00 Per Share


  • Halcon Resources has emerged from bankruptcy and conducted a 34 to 1 reverse split for its old common shares, while issuing new shares and warrants to past noteholders.
  • Halcon's unsecured debt has performed significantly better than its common shares since the restructuring plan was announced.
  • The company's unhedged breakeven is estimated at $55 to $56 oil, while its credit facility covenants appear to require an average of above $45 oil in 2017 and $50+ in 2019.
  • Halcon appears to be competitive in the new oil price environment, although its net debt is still around 4x unhedged EBITDA at $50 oil.
  • Estimated valuation range for Halcon is $8.25 to $11.00 per share.

Halcon Resources (HK) emerged quickly from bankruptcy after its restructuring plan was confirmed by the Bankruptcy Court. It did a 34 to 1 reverse split with its existing common shares and then issued new shares and warrants in exchange to certain debtholders. The result is that Halcon now has 90 million shares outstanding, and another 10 million shares reserved for its management incentive plan (although only part of that 10 million is currently vested or issued).

Pre- And Post- Split Prices

At an $8.56 per share price now, that translates into a $0.252 per share pre-split price. The recovery for the unsecured noteholders is approximately 24.2 cents on the dollar excluding the value of the warrants. The warrants should add an extra one to two cents on the dollar for noteholders.

As is often the case with distressed companies, purchasing the unsecured debt offered better results than the common shares. I previously noted that Halcon's common shares potentially could be worth up to 50% less based on the restructuring plan, and its common shares have fallen 50% since that article. Halcon's unsecured notes appeared slightly undervalued at the time and the return on the unsecured notes appears to be around positive 7% since that article, including the estimated value of the warrants.

Halcon's share price has been affected by the recent decline in oil prices combined with the possible selling of some shares owned by former debtholders. Trading volume has been very heavy post-bankruptcy emergence. The four trading days since emergence have all ranked in Halcon's top 10 heaviest volume days in the past three years based on percentage of outstanding shares traded.

Debt And Liquidity

Halcon's net debt is now approximately $1.09 billion (pro-forma Q2 2016), with its debt consisting of $304 million in credit facility borrowings, $700 million in 8.625% second-lien notes due 2020

This article was written by

Elephant Analytics profile picture
Unique insight into distressed opportunities to target outsized returns.
Elephant Analytics has 15 years of analytical experience and unique skills in numerical analysis and practical mathematics. He is currently ranked in the top 2% of analysts by TipRanks.
Elephant Analytics has also achieved a top 50 score on the Bloomberg Aptitude Test measuring financial aptitude (out of nearly 200,000 test takers). He has also achieved a score (153) in the 99.98th percentile on the WAIS-III IQ test and has led multiple teams that have won awards during business and strategy competitions involving numerical analysis. In one such competition, he captained his team to become North American champions, finishing ahead of top Ivy League MBA teams, and represented North America in the Paris finals.

Elephant Analytics co-founded a company that was selected as one of 20 companies to participate in an start-up incubator program that spawned several companies with $100+ million valuations (Lyft, Life360, Wildfire). He also co-founded a mobile gaming company and designed the in-game economic models for two mobile apps (Absolute Bingo and Bingo Abradoodle) with over 30 million in combined installs.

Legal Disclaimer: Elephant Analytics' reports, premium research service and other writings are personal opinions only and should not be considered as investment advice. Only registered investment advisors can provide personalized investment advice. While Elephant Analytics attempts to provide reports that include accurate facts, investors should do their own diligence and fact checking prior to making their own decisions.

Disclosure: I am/we are long HK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Recommended For You

Comments (9)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.