• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

Magnum Hunter Must Pull the Trigger

There's an April 29 deadline to raise $65 million for a preferred dividend.
By JIM COLLINS
Apr 27, 2015 | 09:00 AM EDT
Stocks quotes in this article: MHR

In the first of my company-specific recaps from the OGIS energy conference in New York, I'll discuss Magnum Hunter Resources (MHR). It issued an 8-K last Monday morning, standard practice ahead of CEO Gary Evans' presentation.

The 8-K explained amendments to MHR's agreements with its lenders on its first and second lien credit facilities.

The market had little reaction in the first part of the week, but Magnum's preferreds fell sharply Friday because of some of the language contained in the preferreds and possibly some confusion over MHR's ability to pay preferred dividends.

It's complex, but MHR's lending group laid down some strict guidelines for its continued payment of dividends on their preferreds.

To pay April's dividend (which had been declared at the beginning of the month) MHR had to:

  • Have an updated S-3 registration statement declared effective by the SEC (which happened Wednesday) and then file for an actual offering, which MHR did last night. The S-3 covers an offering of up to $250 million of common equity in an at-the-market offering, the specialty of investment bank MLV

So, with those two steps taken, MHR is free to pay April's preferred dividends and we shareholders will receive those payments April 30.

To pay May's preferred dividends, Magnum will have to raise $65 million by May 29. This appears to have spooked the market, with MHR-C, MHR-D and MHR-E all falling in Friday's trading.

On the surface it's scary and, believe me, no preferred investor wants to think about covenants in bank facilities that can restrict a company's ability to make future dividend payments. But they exist in almost all cases.

Essentially the May 29 deadline for raising $65 million puts a clock on several liquidity-maximization efforts that Evans had mentioned in the last few months. The time is now for Magnum to pull the trigger on these deals and the 8-K listed potential sources of liquidity, which, in toto, Magnum management valued at $260 million:

  • Gaining a release from letters of credit that back MHR's takeaway deals with gas pipeline companies. As of year-end these totaled $39 million.
  • Partial sale of MHR's interest in the Eureka Hunter Pipeline. Evans noted to me that he doesn't want to sell down MHR's current 48% interest in Eureka below 40%, due to control issues. The valuation given to Eureka in MHR's December transaction was $1 billion, so MHR could sell 8% and raise $80 million.
  • Issuance of common stock. This is the unknown, the plug in the model, if you will. Obviously, Evans wants to issue as little equity as possible, especially with MHR shares getting pounded down to $2.25 in Friday's trading. At that level it would take 28.9 million shares to raise $65 million in gross proceeds and that would be a punishing 14.4% dilution based on MHR's year-end share count of 201 million. So, let's think of equity issuance as a last resort and assume $0. Clearly, though, the banks wanted that option on the table.
  • Joint venture of Utica Shale assets. Evans noted to me that final JV proposals had been received and that MHR was now negotiating among the high bidders. He pegged the upfront cash to MHR in such a "drilling carry" arrangement at $50 million to $100 million.

All of those initiatives had been previously noted, but Evans also noted Monday that MHR was exploring:

  • The sale of non-core assets in MHR's Utica shale leasehold, which the company estimated would fetch $40 million to $65 million. 
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Collins was long MHR-C, MHR-D and MHR-E.

TAGS: Investing | U.S. Equity | Energy | Stocks

More from Energy

Don't Waste Energy Divining Energy's Future; Ride With LNG Shippers Instead

Jim Collins
Jan 21, 2021 10:30 AM EST

A hot market for liquefied natural gas makes companies that transport the fuel sensible plays at a time when oil is demonized.

Renewable Energy Group Is Set to Drive to New Highs

Bruce Kamich
Jan 21, 2021 10:08 AM EST

REGI is the nation's largest biodiesel maker.

At What Price Is Ballard Power Systems a Buy?

Bruce Kamich
Jan 15, 2021 3:09 PM EST

Let's check out the latest charts of BLDP.

Time to Nail Down Some Profits on Halliburton

Bruce Kamich
Jan 14, 2021 10:47 AM EST

Our latest technical analysis and trading strategy for the oil services stock.

A Rising Tide Is Going to Lift LNG Shippers in a Very Cold Winter

Jim Collins
Jan 14, 2021 10:30 AM EST

Also, my take on Jack Dorsey and Twitter, along with Facebook.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:35 AM EST GARY BERMAN

    Thursday Morning Fibocall for 1/21/2021

    SPX (Long-Term View) The 1/20/21 NEW high @ 3859...
  • 11:38 AM EST CHRIS VERSACE

    Best Stocks to Buy for the Biden Presidency

    President-elect Biden's massive stimulus plan, int...
  • 08:07 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 1/20/2021

    SPX (Long-Term View) The 1/8/21 high @ 3826.69 i...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login