EXCO Resources cut debt by $402 million in Q4, continues repurchases in 2016

By Paul Deckelman

New York, March 2 – EXCO Resources, Inc. sharply cut its debt in the fourth quarter of 2015 via a series of capital market transactions – and has continued that debt-reduction process during the first two months of the new year, company executives said Wednesday.

And the Dallas-based oil and natural gas exploration and production company is confident that its lenders will reaffirm the borrowing base on its credit facility at current levels despite the sharp decline in energy commodity prices since the last base redetermination back in October.

The company’s chief executive officer and president, Harold L. Hickey, told analysts on the company’s conference call following the release of its results for the 2015 fourth quarter and full fiscal year ended Dec. 31 that “we’ve improved our debt structure, reducing our total debt by $402 million, or 26%, during the fourth quarter.”

The company reached a series of agreements with some of the holders of its 7½% senior notes due 2018 and 8½% senior notes due 2022, under which the bondholders agreed to exchange their notes for 12½% senior secured five-year second-lien term loan paper.

Even after the 2015 fourth quarter and full year had ended, Hickey said, “we’ve continued to focus on extending our liquidity runway, by reducing our unsecured notes by an additional $49 million.

“Managing our liquidity is absolutely key as we work through this cycle.”

Transactions cut bond debt

According to figures contained in presentation slides prepared for use in connection with the conference call, by the end of February, EXCO had decreased its outstanding balance of the 2018 notes – its nearest maturity – to $149 million from $750 million at the end of the 2015 third quarter on Sept. 30, or an 80% reduction, and had likewise cut the outstanding 2022 notes down to $183 million from $500 million on Sept. 30, or a 63% decline.

It had raised $700 million of the new 12½% term loan debt, including a $300 million chunk of that from its third-largest shareholder.

It also used some of those term loan proceeds to lower its revolving credit facility balance to $95 million from $300 million, or a 68% decline.

After all of the transactions, the company said, its gross debt fell to $1.127 billion at the end of February from $1.55 billion five months earlier and after taking into account respective cash balances of $60 million and $42 million, net debt declined to $1.067 billion from $1.508 billion.

As of the end of 2015, its leverage ratio of net debt as a multiple of trailing 12-month adjusted EBITDA stood at 4.68 times, within its maximum allowed leverage ratio of 6.0 times, and its ratio of adjusted EBITDA as a multiple of interest requirements was 2.38 times, exceeding the 1.25 times minimum requirement.

Hickey further said that “our balance-sheet-focused liability-management efforts have improved our debt structure and provided structural liquidity.”

He said the company had $125 million of secured debt capacity for future exchanges or issuance of new secured debt, “and we’re evaluating additional liability-management initiatives.”

Borrowing-base looks good

Hickey said that EXCO had $270 million available for borrowing on its credit agreement and that the company’s asset base “is highly supportive of our $375 million borrowing base” on that facility.

The company’s vice president and chief financial officer, Richard A. Burnett, told the analysts on the call that with the borrowing-base redetermination coming up later this month, “we believe our reserves are more than sufficient to support the borrowing base,” with proved reserves of $811 million versus the $375 million borrowing base. That borrowing base had been reduced from $600 million in October in connection with EXCO’s aforementioned second-lien term loan issuance, as it termed out $300 million of its outstanding credit agreement balance.

He said that “we have received positive feedback from our lead bank on our pending spring redetermination, and they are supportive of reaffirming our borrowing base at $375 million.”

He said that unlike several of the company’s energy-sector peers, “we don’t perceive the need for modifications to our debt covenants to remain compliant.”

He did caution that “we recognize that the banks have considerable discretion in setting our borrowing base. Our liquidity could be negatively impacted if the borrowing base is reduced” – although he does not believe this will happen.

CEO Hickey concluded that “we remain liquidity-focused to enhance our runway and continue implementing our improvement plan.”

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