The entire oil & gas industry in the USA has been crushed by sustained low oil prices, but California Resources also had to deal with stricter local regulations (both in terms of Covid-19 response and drilling in general) and a heavy, inherited debt burden. The last part came from its 2014 spinoff from Occidental Petroleum (OXY) and despite the passing of six years, the company very openly assigned a hefty portion of the blame for its current situation at the feet of Occidental. We are no experts here, but it would not be a surprise if there is some litigation in the future claiming that it set up California Resources to fail. If any of our readers are knowledgeable in this area, please feel free to weigh in below.
The proposed deal ‘will eliminate over $5 billion of debt and mezzanine equity interest and consolidate CRC’s ownership of the Elk Hills power plant and cryogenic gas plant’. Additionally, the company secured DIP financing of over $1B from its creditors in order to continue operating so that is good for its employees (for now). It will also use some of those proceeds to refinance its 2014 loans. The Term Lenders also ‘agreed to backstop a $450 million equity rights offering and a $200 million second lien exit financing facility’. Bloomberg reports that holders of the company’s 2017 loan will control 93% of the restructured company while junior debtholders are expected to own just 7%. The deal secured support from CRC’s JV partner Ares Management, ~84% of its 2017 term loan holders and 51% of its 2016 term loan holders.
Sadly, there were still people trading the stock and they will be wiped out under the new plan. The proposed deal still needs approval from the US bankruptcy courts, but hopefully, this is the last time we will be writing about this for awhile!
Disclosure: Author holds no position in any stock mentioned.
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