Defaults
Defaults
I see where both SAND and SFY are being touted as likely to default on loan payments in the coming week. I realize you no longer follow these, but some of us have retained them and Dan, your thoughts would be appreciated. Based on your last report on SFY this appears to be surprising. Thanks, Marty
Re: Defaults
I cannot help you with SD. It is way off my radar screen.
An updated Net Income & Cash Flow Forecast model for SFY has been posted under the Watch List Tab. They definitely have a rough period ahead, especially if natural gas prices move a lot lower. Remember, the Faskin area of the Eagle Ford is dry gas.
SFY is likely to be forced to take a big Ceiling Test writedown in Q4. It may put their balance sheet ratios out of compliance with their debt covenants.
The lower capex budget they announced today is a wise move. It is now time for them to "hunker down" and live within cash flows. If they can keep production within their guidance range they should make it.
Keep in mind that if the banks decide to call the debt because of covenant violations it will get ugly very fast for these small-caps. Banks do not like to force companies into Chapter 11 since it is costly and they normally do not get full payment. As long as SFY keeps making the interest payments, the bank should work with them.
The next few quarters will be big losses for both companies, so do not expect the share prices to rebound anytime soon.
An updated Net Income & Cash Flow Forecast model for SFY has been posted under the Watch List Tab. They definitely have a rough period ahead, especially if natural gas prices move a lot lower. Remember, the Faskin area of the Eagle Ford is dry gas.
SFY is likely to be forced to take a big Ceiling Test writedown in Q4. It may put their balance sheet ratios out of compliance with their debt covenants.
The lower capex budget they announced today is a wise move. It is now time for them to "hunker down" and live within cash flows. If they can keep production within their guidance range they should make it.
Keep in mind that if the banks decide to call the debt because of covenant violations it will get ugly very fast for these small-caps. Banks do not like to force companies into Chapter 11 since it is costly and they normally do not get full payment. As long as SFY keeps making the interest payments, the bank should work with them.
The next few quarters will be big losses for both companies, so do not expect the share prices to rebound anytime soon.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group