Wednesday, April 1, 2015

Skies Continue to Darken for Sabine

Sabine Oil and Gas finally issued its delayed annual report yesterday and dropped this bombshell in its Risk Factors section:
"The report of our independent registered public accounting firm that accompanies our audited consolidated financial statements for the year ended December 31, 2014 contains an explanatory paragraph regarding the substantial doubt about our ability to continue as a going concern. As a result, we are in default under our New Revolving Credit Facility and Term Loan Facility."
Default:  the most frightening word for any CFO.

Fuel Fix had a good article on the situation, but the auditor's report has triggered a 30 day clock before the company's fully drawn $971 million revolver will be in default.  In all, the company has $2.82 billion of debt and only $326.8 million of cash on hand.

Sabine has hired legal and banking advisers to help extricate the company from its sticky situation, but when the dominoes start to fall, they fall fast and mercilessly.  This might be especially true for Sabine, which pissed off some bondholders with its merger with Forest Oil.

Previously, I used the metaphor of vultures circling over Sabine's head.  Instead, I think circling sharks is more appropriate at this point.

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