Bellatrix Exploration Ltd (Canada) BXEFF

TD Lowers Target price to .40

[felix10]

Event

Bellatrix announces recapitalization transaction.
 

Impact: MIXED; dilution offset by debt reduction and term-out
 

Recapitalization features the exchange of a portion of senior notes and

all convertible debentures for shares. The company announced a proposed

transaction which includes the exchange of all currently outstanding senior notes

due in May 2020 (US$145.8mm) for US$50mm of new second lien notes and US

$50mm of new third lien notes (both due late in 2023) and 51% of pro forma

shares outstanding following the transaction (equating to 250mm shares on a total of

490mm pro forma). In addition, the company will exchange all currently outstanding

convertible debentures (C$50mm) for 32.5% (159mm shares) of pro forma shares

outstanding.
 

Although the transaction buys the company a much needed term on the

remaining notes, and will result in interest savings, the implied share issue

price is below the previous trading value. Bellatrix will save an estimated ~

$12mm/year in interest and our 2019E pro forma net debt falls by 25%. That said,

the implied combined price of the shares to be issued under the proposal equates

to $0.27/share.
 

Overall, the discounted implied share issue price is indicative of the cost to

buy the company an additional three years to deal with the debt overhang.

In our view, options were becoming limited as 2020 is fast approaching and this

essentially provides the company with time and an option to wait for regional gas

prices to recover.
 

Completion of the transaction is conditional upon several key assumptions,

which include the extension of the company's current credit facility by one

year (it was expected to mature in November 2019).
 

Bellatrix has also entered into support agreements with 90% of the current

senior note holders and 50% of the convertible debenture holders, while the

transaction is expected to close by the end of May 2019 (pending approval).
 

TD Investment Conclusion
 

We believe that with options dwindling, the recapitalization is prudent and the costs

to do so are within reason. That said, we have reduced our CFPS and NAV estimates

as a result of the share dilution required, and as such, we have reduced our target

price to $0.40 (from $0.75 previously), and we remain HOLD-rated

[JohnMayer]

TD should be ashamed of recommending this company.  Clearly, management blindsided everyone with this announcement.  Now what you're seeing are debenture holders shorting the shares bc they know they will be recapitalized at $0.27.  Sell what you can at $0.30 and you're covered at $0.27 with this deal.  I feel badly for shareholders or anyone who listened to Schacter

[Straite]

A hold is not a buy. Their recommendation essentially tells current shareholders not to sell since its too late.

[zebra2]

On thursday Mar 28 , the market cap of this company was approx $44 million ( ie .53 per share at 80 million shares)   . Assuming the proposed deal goes thru, today the market is valuing  the company at $147 milllion  ( .30 per share at 490 million shares) ...And TD is valuing it at $196 million .  Judge for yourself  whether the current  share price is over

[Straite]

I think the 150m to 200m current mkt valuation is probably accurate. You could now compare it to CR. CR has 24500boe/d production, 350m l-t debt maturity 2024, little production growth. Maybe more assets (land). BXE has 35000boe/d, 61m s-t debt, 266m l-t debt, little production growth. I think correlation between both will increase from now on.

[honeystivbators]

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[Straite]

True that CR has land and been able to sell some recently. I understand your bearishness for BXE, which might have paid off (are you long, short or only watching?). However, I think at this point there is not much of a case to be bearish unless you are bearish on the whole sector. Maybe come back in 2 years and be bearish again if things have not improved by then.

[honeystivbators]

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[Straite]

My main point being BXE's underperformance relative to peers might be a thing of the past. Doesn't mean it will overperform.

[honeystivbators]

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[projectleopold]

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[honeystivbators]

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[honeystivbators]

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