When a company says it is "evaluating a variety of strategic alternatives," investors tend to get nervous. On Friday, shares of Houston-based Ultra Petroleum (UPL) plunged more than 40%, one day after the company reported a fourth-quarter adjusted loss of $0.25 per share and announced that it retained Kirkland & Ellis as a legal advisor to help it manage its debt.
As of the end of the fourth quarter, Ultra Petroleum's debt stood at $3.4 billion, and was downgraded to CCC- by Standard & Poor's Ratings Services earlier this month.
"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.
Covenants in Ultra Petroleum's revolving credit facility and senior notes bar the company from having a debt/EBITDA ratio that is greater than 3.5x. As of fourth-quarter figures, the leverage ratio stood at 3.4x. Additionally, the company announced that it borrowed an additional $266 million under its credit facility, which was "substantially all" of the undrawn amount under the agreement.
Shares of Ultra Petroleum are now trading below $0.25.
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