Martin Tsvetkov

Bonanza Creek Energy Inc (NYSE:BCEI) Dives 36% Amid Restructuring Prospects

by Martin Tsvetkov July 14, 2016

The shares of Bonanza Creek Energy Inc (NYSE:BCEI, BCEI message board) were among the biggest losers on the market yesterday, wiping more than 36% off their market value and registering one of their worst daily performances for quite a while. As it seems, the fall was triggered by an 8-K filing hinting at the possibility of corporate restructuring moves. So what does the future for Bonanza Creek look like?

If we ask those investors who first jumped ship yesterday, they would probably think of a Chapter 11 filing looming ahead, for that is what first comes to mind when talking about corporate restructuring plans, doesn't it? Of course, this does not necessarily have to be the case for Bonanza Creek in particular, at least not until further information is disclosed.

Yet, the revenue stream has been on a steady decline over the last four quarters and the company hasn't made a dime during that time, either. Given the unfavorable oil and gas pricing environment that has plagued the whole industry for months now, a better scenario could hardly have occurred. So instead of propping up its ailing financial position, the independent explorer of onshore oil and liquids-rich natural gas sites nationwide has suffered badly – so badly that even lenders have severely reduced BCEI's total borrowing base, thus bringing Bonanza's borrowing limit down to $200 million (from $475 million).

At the closing bell yesterday, BCEI clocked in at $1.46 per share after a record-breaking volume in excess of 16.6 million, four times higher than average. Needless to say, this will increase short sales as shorters will be looking for ways to trim losses, especially if the Chapter 11 prospect turns into a real threat.

We will keep an eye on the company to see how managers, along with financial and law advisors Perella Weinberg Partners and Davis Polk & Wardwell LLP, intend to bring Bonanza Creek Energy on solid ground, because that's what estranged investors will be expecting before coming back into the fold.

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