Vanguard Natural Resources Misses Payment Amid Sector Strain

  • Credit reviews loom even after oil prices rally on OPEC limits
  • Company invokes 30-day grace period and hires Evercore

The rally in energy prices may not have come soon enough to help some U.S. oil and gas producers, with Vanguard Natural Resources LLC joining the rapidly growing list of companies that can’t pay their debts on time.

Vanguard said Monday it’s postponing a $15 million interest payment on its senior notes for 30 days to preserve liquidity until banks have finished recalculating how much it can borrow on its credit facility, according to a statement Monday. The Houston-based company also hired Evercore Partners Inc. to find more capital. If it can’t pay, Vanguard will add to the tally of this year’s defaults, which S&P Global Ratings said is running at the fastest pace since 2009.

“Energy and natural-resources companies are driving defaults in the U.S.,” Diane Vazza, head of global fixed-income research at S&P Global Ratings, said in a phone interview. “Multi-year lows in commodity prices continue to plague the entire energy sector.”

Investors had speculated that cash-strapped energy companies might get some relief after the Organization of Petroleum Exporting Countries agreed on Sept. 28 to limit production for the first time in eight years. While oil capped its biggest monthly gain since April after the announcement, the advance may not be enough for companies facing borrowing-base redeterminations, the twice-a-year review of credit lines that bankers typically conduct in spring and autumn.

Drilling Down

Oil and gas drillers continue to dominate the global list of defaults globally this year with 73 issuers, or 56 percent of the 130 companies, according to an S&P report. Vazza said more than 20 percent of about 250 speculative-grade issuers on S&P’s default watch are oil and gas companies.

Even with the recent rally, energy prices remain depressed, which may put more pressure on borrowing-base credit lines, according to Bloomberg Intelligence. More than 20 companies have used more than 70 percent of their credit lines, according to data compiled by BI.

Vanguard’s first-lien lenders granted a waiver, and the company hired Evercore on Aug. 1 as a financial adviser to negotiate with “new potential capital sources and other financial matters as deemed necessary,” according to its statement. Representatives for Houston-based Vanguard didn’t respond to requests for comment. Dana Gorman, an outside spokesman for Vanguard’s financial adviser Evercore, and Reilly Starr, a spokeswoman for its legal adviser Paul Hastings LLP, declined to comment.

Delay, Default

The delay affects a payment due Oct. 3 on about $381.8 million of senior notes due 2020. Failure to pay at the end of the grace period would amount to a default and could trigger demands for repayment of the company’s other outstanding debts, Vanguard said.

Vanguard’s 2020 senior notes fell 5.06 cents on the dollar to 44.82 cents as of 4:45 p.m. in New York, the steepest decline in corporate bonds, according to data compiled by Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

Chief Financial Officer Richard Robert said in an earnings call in July that Vanguard’s principal goal was to find sources of capital to pay down its revolver “to a level where that cloud is no longer over our heads, and we’d begin to control our own destiny again.” The company reported a $1.9 billion loss for 2015 and a $419.5 million loss for 2016’s first half, which included a $365.7 million impairment charge on oil and natural gas properties.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE