• Three firms amass driller’s $1.6 billion of unsecured bonds
  • Company is on track to default within a year: S&P analyst

Distressed-debt investors including Leon Black’s Apollo Global Management LLC have snapped up much of the debt of Permian Resources, with an eye to potentially capturing control of the oil and gas producer started in 2014 by the late Aubrey McClendon, people familiar with the matter said.

Apollo and EIG Global Energy Partners, a Washington-based firm, paid fire-sale prices for the debt starting in 2015 after oil prices plunged, while amassing more than half of Permian Resources’ $1.6 billion face value of unsecured bonds, according to the people, who asked not to be named because the information is private.

WL Ross & Co., led by distressed investor Wilbur Ross, is a third major holder of the unsecured bonds, which makes up just over half the company’s $3 billion of debt, the people said.

Spokesmen for Apollo and EIG declined to comment. Representatives for WL Ross and Permian Resources didn’t respond to phone messages seeking comment.

All three firms pursue distress-for-control plays, which involve accumulating stakes in troubled companies’ debt with the objective of wresting control through a debt-for-equity swap, either in an out-of-court restructuring or in a bankruptcy reorganization.

Earlier Tuesday, the Wall Street Journal reported the firms had invested in the oil and gas producer’s debt in a bid to take control.

That outcome may be in the cards for Permian Resources, Carin Dehne-Kiley, an analyst at S&P Global Ratings, said in a phone interview.

“The debt load is not sustainable,” she said.

Best Assets

Oklahoma City-based Permian Resources, formerly named American Energy-Permian Basin, is widely seen as having among the best assets of a half dozen oil-and-gas acquisition vehicles that McClendon set up during his brief tenure at American Energy Partners. AEP is the deal boutique he founded in 2013 after being ousted as chief executive officer of Chesapeake Energy Corp., the nation’s second-largest natural gas producer.

McClendon, who died in a car crash in March, got most of his equity funding from Energy & Minerals Group, the Houston-based private equity firm that currently controls Permian Resources. But the bulk of the money for his deals came from debt, a bent for borrowing that now plagues, in addition to McClendon’s startups, scores of oil and gas producers that binged on loans in heady days when oil prices were high.

Since the start of 2015 through June 30 this year, 85 oil and gas producers filed for bankruptcy, including 27 in the previous three months, according to law firm Haynes & Boone.

Permian Resources began in mid-2014 with $1.15 billion in equity and $1.6 billion in debt, which bankrolled the company’s purchase of drilling rights to 63,000 net acres. The company, according to its website, now has leaseholds to 85,000 net acres in the Permian Basin in west Texas, one of the country’s most prolific oil and gas fields.

Buying Time

While the quality of the company’s assets is high, so are its obligations. S&P gives Permian Resources an overall corporate credit rating of triple-C, a few notches above D for default. If oil prices don’t rebound, said S&P’s Dehne-Kiley, Permian Resources’ earnings before interest, taxes, depreciation and amortization -- a common yardstick of cash flow -- could drop as low as $125 million this year from about $300 million in 2015.

The company bought itself time this year by selling assets, raising $243 million. Still, the analyst said, it appears to be headed for default.

“They can skate by for another 12 months,” she said. “The wild card is Energy & Minerals Group, and whether it will put in more money.”

A spokeswoman for Energy & Minerals Group declined to comment.

The unsecured bonds traded late last month at about 55 cents on the dollar, up from a low of about 24 cents in February, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Because Permian Resources was privately financed, it doesn’t publicly report its earnings, assets or debt.

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