Lonestar Resources Enters Into A Restructuring Support Agreement

Summary

• Lonestar entered into a restructuring support agreement that will eliminate its bond debt and preferred shares.
• Unsecured bondholders will receive 96% of its new equity, leaving 3% for preferred shareholders and 1% for common shareholders.
• The company's unhedged breakeven point is estimated at mid-$40s WTI oil after significantly reducing its interest costs.
• Overall debt still remains higher than ideal though, as the credit facility debt is carried over into a new credit facility and a second-out term loan.
• Current common shares are worth a penny or two based on the new equity they are expected to receive.
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Lonestar Resources (LONE) announced a restructuring support agreement that will eliminate its bond debt and preferred shares. While the elimination of the $28 million per year in bond interest will help the company's competitiveness, it may still have future problems due to a high remaining amount of debt. There doesn't appear to be any new money coming into Lonestar, and the company's current credit facility debt (less paydown from the monetization of hedges) is being rolled into a new first-out secured credit facility and a second-out term loan facility.

Despite restructuring, Lonestar will still need to be careful to manage and reduce its remaining debt. Its current common shares appear to be worth only a penny or two based on the value of the new equity they will receive.

The Restructuring Support Agreement

The restructuring support agreement calls for Lonestar's $250 million in unsecured notes to be exchanged for 96% of its new equity. The company's $105 million in Series A-1 preferred stock will be exchanged for 3% of its new equity, while the current common stock will be exchanged for 1% of its new equity. This is subject to dilution from the Management Incentive Plan (reserving 8% of new equity) and warrants given to the credit facility lenders that will allow them to purchase 10% of Lonestar's new equity.

Lonestar's hedges will be terminated in exchange for an estimated $30 million in cash proceeds. Combined with its positive cash flow in the second half of the year, this may result in the company's credit facility debt being paid down to around $245 million.

On the plan effective date, 80% of the credit facility debt ($196 million in this example) will be converted into a new credit facility that is expected to mature in late 2023. The remaining 20% ($49 million) will go into a second-out term

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