Investors can't say they weren't warned about Ultra Petroleum's (UPL) Chapter 11 filing. While the oil and gas industries' troubles have been widely telegraphed, Ultra Petroleum's often seemed worse.
In its third-quarter 2015 10-Q, the Houston-based oil and gas company warned that it may have difficulty remaining in compliance with its debt covenants. In its 2015 10-K, Ultra Petroleum warned that it had hired legal and financial advisors to help it evaluate strategic alternatives, which could include filing for Chapter 11 protection.
Soon thereafter, the company began obtaining waivers and deferring interest and principal payments on its debt. Ultra Petroleum filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas on Friday, one day before the waivers expired. In court documents, the company reported assets of $1.3 billion against $3.9 billion in debt.
The circumstances leading to Ultra Petroleum's demise are not that much unlike the difficulties that have plagued other companies on Real Money's Stressed Out list: high debt levels against limited liquidity.
However, in the case of Ultra Petroleum, the near-term impact of its debt balanced against its liquidity was greater than that of its similarly distressed peers. In the fourth quarter, Ultra Petroleum reported $4 million in cash and had a $62 million debt maturity payment coming due in March 2016. (It was able to obtain a waiver on that payment at the last minute.) Ultra also borrowed the remaining $266 million available under its credit facility after the close of the fourth quarter. The funds were expected to be used for general corporate purposes, though the company acknowledged that its ability to continue as a going concern was tenuous.
Other Stressed Out companies such as Southwestern Energy (SWN), Chesapeake Energy (CHK) and Freeport-McMoRan (FCX) have rebounded strongly in 2016, buoyed largely by rising commodity prices. While debt remains a problem for all three, they have been able to get by through a mix of asset sales, layoffs and creative liquidity management. Meanwhile, Ultra Petroleum, which reported fewer than 200 employees in its Chapter 11 filing, had little left to cut.
For more on Real Money's 20 distressed companies to watch: