Whiting Petroleum's Bankruptcy: Shares Are Trading At Over 10x The Value Implied By The Unsecured Notes

Apr. 28, 2020 2:52 PM ETChord Energy Corporation (CHRD)99 Comments

Summary

  • Whiting filed for bankruptcy, with the unsecured notes expected to get 97% of the new equity, compared to 3% for common shareholders.
  • One could buy 1% of the new equity for $2.44 million via the unsecured notes.
  • At $1 per share, it would cost $30.6 million to buy 1% of the new equity via the common shares.
  • Past experience suggests that the unsecured note prices are much better at predicting the value of the new equity.
  • Looking for more stock ideas like this one? Get them exclusively at Distressed Value Investing. Get started today »

Whiting Petroleum (WLL) has filed for restructuring, and announced a plan where its unsecured notes would be converted into 97% of the new equity, while its common shareholders would receive 3% of the new equity. Whiting's unsecured notes are now valuing its new equity at close to $250 million, while its common stock (at $1) is valuing its new equity at over $3 billion. Past experience suggests that the unsecured note prices are much closer to reality based on current market conditions.

Restructuring Plan

Under the terms of the proposed plan, the unsecured notes will be exchanged for 97% of the new equity in Whiting (subject to dilution from the management incentive plan and warrants). Existing equity holders will receive 3% of the new equity in Whiting (also subject to dilution from the MIP and warrants).

Existing equity holders also will receive four-year warrants to purchase 10% of the new equity at an exercise price equal to an implied 110% recovery for the unsecured notes and five-year warrants to purchase 10% of the new equity at an exercise price equal to an implied 125% recovery for the unsecured notes. The warrants are subject to dilution from the MIP only). Another 8% of the equity is reserved for the MIP.

This would result in Whiting's new share distribution looking like the following table, assuming 100 million new shares.

Shares Excluding Warrants % Ownership
New Shares Issued To Current Whiting Shareholders 2,760,000 2.76%
New Shares Issued To Unsecured Holders 89,240,000 89.24%
New Shares Issued Under MIP 8,000,000 8.00%
Total 100,000,000 100.00%

Whiting's New Equity And Bond Prices

At last report Whiting had 91.8 million shares outstanding. It also had $2.371 billion in unsecured notes outstanding. The unsecured notes are currently trading for approximately 10 cents on the dollar. This would imply that

Free Trial Offer

We are currently offering a free two-week trial to Distressed Value Investing. Join our community to receive exclusive research about various energy companies and other opportunities along with full access to my portfolio of historic research that now includes over 1,000 reports on over 100 companies.

This article was written by

Elephant Analytics profile picture
10.2K Followers
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 short WLL. 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.

Additional disclosure: Short WLL via puts.

Recommended For You

Comments (99)

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.