CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded Energy XXI LTD's (NYSE: EXXI) and Energy XXI Gulf Coast's (EGC) Long-term IDR to 'D' following the company's filing for bankruptcy protection under Chapter 11 of the U.S. bankruptcy code.
A full list of rating actions follows this release.
KEY RATING DRIVERS
RESTRUCTURING SUPPORT AGREEMENT
On April 14, EXXI announced that it had entered into a restructuring support agreement (RSA) with certain holders of the company's second-lien notes. In order to implement the terms of the agreement, EXXI voluntarily filed for Chapter 11 relief. Under the proposals contained in the RSA, substantially all prepetition funded debt would be eliminated, other than amounts related to the first-lien bank facility. Second-lien holders would receive a pro rata share of 100% of equity in the reorganized company, subject to dilution from equity amounts attributable to a proposed long-term incentive plan for management. Under the RSA, EGC, EPL Oil & Gas, and EXXI LTD unsecured claims would receive a pro rata share of a proposed warrant package, provided they vote to accept the plan of reorganization. Existing common and preferred stock would be extinguished, with existing equity holders receiving no consideration. The RSA contemplates that John Schiller would continue as CEO of the reorganized company.
EXXI reported cash on hand of $180 million as of March 31, 2016. The company expects operations to continue as usual during the restructuring, and EXXI will manage their assets as debtors-in-possession under the jurisdiction of the bankruptcy court.
UPDATED RECOVERY ANALYSIS
EXXI Gulf Coast recoveries are estimated as outstanding ('RR1'; 100%) at the first-lien secured level, average ('RR4'; 31 to 50%) at the second-lien secured level, and poor ('RR6'; 0%) at the unsecured level. EXXI LTD debt and preferred stock is structurally subordinated to the assets at EXXI Gulf Coast, and receives no recovery value in our analysis ('RR6'; 0%).
Recovery values are based on estimated liquidation values of proved (1P) oil and natural gas reserves. Fitch begins with a standard value of $12.5/boe for an average producer, which is based on our long term price deck ($65/bbl oil, $3.25/mcf natural gas). Fitch then makes adjustments for location and quality, oil & gas mix, as well as adjustments related to the recent decline in commodity prices.
FULL LIST OF RATING ACTIONS
Energy XXI Gulf Coast Inc.
--Long-term Issuer Default Rating downgraded to 'D' from 'C';
--Senior secured first lien revolver affirmed at 'CCC/RR1';
--Senior secured second lien notes downgraded to 'C/RR4' from 'CCC-/RR2';
--Senior unsecured notes affirmed at 'C/RR6'.
Energy XXI LTD
--Long-term IDR downgraded to 'D' from 'C';
--Convertible notes affirmed at 'C/RR6';
--Convertible perpetual preferred affirmed at 'C/RR6'.
Summary of Financial Statement Adjustments - Fitch has made no material adjustments that are not disclosed within the company's public filings.
Additional information is available on www.fitchratings.com.
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)
Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 05 Apr 2016)
Dodd-Frank Rating Information Disclosure Form