Stressed Out: Ultra Petroleum's Debt Payment Due Today Is Ultra Urgent

 | Mar 01, 2016 | 10:58 AM EST
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This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list.

While Real Money has been tracking Ultra Petroleum's (UPL) decline for some time, the Houston based-company made its troubles boldly clear in a filing with the Securities and Exchange Commission.

The company has retained the services of Kirkland & Ellis as well as other legal and financial advisors to explore strategic alternatives to restructure its debt in private transactions.

"However, if our attempts are unsuccessful or we are unable to complete such a restructuring on satisfactory terms, we may choose to pursue a filing under Chapter 11 or under the equivalent provisions of the Canadian Bankruptcy and Insolvency Act," the company said in its filing.

The company acknowledged its "significant indebtedness," which includes $2.7 billion in senior notes, $630 million in bank debt, and $165 million in long-term obligations. Due to "substantial doubt" raised by auditors that Ultra Petroleum will be able to continue as going concern, the company said it reclassified all of its outstanding debt as short term.

The pressure is on for Ultra Petroleum as it has two obligations due Tuesday: a $62 million maturity payment and $40 million in interest payments. As of its fourth-quarter earnings release, the company has $4 million in cash and cash equivalents.

In February, Ultra Petroleum announced that it borrowed $266 million under its revolving credit facility, which represented "substantially all" of the remaining amount under the agreement. Ultra Petroleum expects to be "in default" under the agreement on Mar. 15, 2016 when it delivers financial statements to the lenders of its credit facility. (J.P. Morgan Chase Bank is listed as the administrative agent on the agreement.) 

In February, Standard & Poor's Ratings Service downgraded Ultra Petroleum's debt to CCC-.

"The rating action reflects our view that Ultra Petroleum's leverage and liquidity continue to deteriorate in light of our recently reduced commodity price deck and our estimate that the company will breach financial covenants on both its unsecured credit facility and senior unsecured notes at the end of the first quarter," Carin Dehne-Kiley of Standard & Poor's said in the statement announcing the downgrade.

Shares of Ultra Petroleum fell more than 20% Tuesday and trade for just under $0.30.

For more on Real Money's 20 distressed companies to watch:

Stressed Out: Introducing Real Money's Distressed Index

Stressed Out: Chesapeake Energy Earnings Herald Rough 2016

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