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Bellatrix Exploration Ltd: Concerns Mount

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On March 15, 2019 publicly traded Canadian oil and gas  company Bellatrix Exploration (BXEFF) saw its stock price drop 10%. That alerted the BDC Credit Reporter which took a deeper look at the company’s most recent results published on March 14, 2019. We also read the Conference Call transcript, looked at the Investor Presentation and a new article on Seeking Alpha by Herve Blandin. The upshot: Bellatrix is performing well enough but the company has a large amount of debt, some of which is coming due in 2019 and refinancing or restructuring will be necessary shortly. In fact, on the CC management said as much and then declined to take any questions from analysts and shareholders:

As part of the Company’s ongoing debt refinancing efforts, Bellatrix announced on March 1, that the Company remains in ongoing confidential discussions with parties across its capital structure in connection with potential transaction alternative. Bellatrix does not intend to provide updates on the potential transaction alternatives, until the Board of Directors of the company approves a definitive transaction or the company otherwise determines that further disclosure is necessary or appropriate. There’s not much more we can share at this time. And as a result, we will not be taking questions on it today, and we’ll forgo our customary Q&A period.

Bellatrix has $453mn in debt but was well within its covenants and enjoyed unused Revolver availability of $47mn. According to Mr Blandin “The company must extend its credit facilities beyond November 2019. And it must also refinance its US$145.8 million senior unsecured notes due May 15, 2020”. Of course, if Bellatrix is not able to re-arrange its debt insolvency may follow. For the only BDC with exposure: FS KKR Capital (FSK) that could represent trouble. The BDC has $6.6mn in second lien debt due in 2023 and generating $0.561mn in annual investment income (8.5% yield). FSK values the debt at close to cost. Given the tumble in Bellatrix’s price; the stone walling by management; the high level of debt and the second lien position, we are less sanguine and have placed Bellatrix on our Watch List. Given the massive losses lenders – especially in junior positions – have endured in recent years lending to E&P companies, we don’t understand FSK’s optimism as reflected in the valuation. Moreover, note that total exposure by entities managed by FS Investment and KKR exceeded $100mn as of September 2018, but the latest numbers have not been published to Advantage Data from where we’ve sourced this data. See below for the September 30 2018 balances:

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