Shares in Stone Energy Corporation (NYSE:SGY) plunged Monday after analysts at Barclays downgraded the company from Equal Weight to Underweight and a price target of $3.
The stock dipped 13.15% to $9.25, with 721.11K shares changing hands.
The Barclays’ price target assumes a slide of 68% from current levels.
What’s the rationale for Stone Energy Corporation (NYSE:SGY)’s downgrade?
Barclays are apparently concerned about continuing challenges in the offshore market and fearing that they could lead to Stone Energy having to restructure or enter a “reorganization transaction that could result in substantial downside to the current equity value.”
This is a real possibility given that Chairman, President and Chief Executive Officer David Welch stated in its Q2 earnings release that the company continued to work with advisors for advice on various financial, transactional and strategic restructuring alternatives.
John Gerdes, head of research at KLR Group LLC, said in a note to clients in August that “Stone’s balance sheet remains in a precarious situation and a restructuring is probable. We would not advise ‘fresh’ money to invest in the company.” (Bloomberg)
The company has retained Lazard as its financial advisor and Latham & Watkins LLP as its legal advisor.
Stone Energy Corporation (NYSE:SGY)’s Q2 results and liquidity crunch
Stone Energy reported a net loss of $195.8 million ($35.05 per share) on revenue of $89 million. The net loss per share was up from $27.68 per share in the second quarter of 2015.
The company warned that due to liquidity considerations it may not be “able to meet our interest payment obligation on the 7.5% Senior Notes due in 2022 in the fourth quarter of 2016, as well as the subsequent maturity of our 1¾% Senior Convertible Notes due in March 2017.”
The company carried a net debt of about $1.24 billion as at end of Q2, 2016, and reported eight consecutive quarterly losses.
It is said to be in debt restructuring talks with note-holders.
Stone Energy Corporation (NYSE:SGY) looking to sell assets
The company said in an August 23 filing that it was looking to sell its Appalachian assets in a transaction that could realize $350 million, of which $150 million could go to note-holders, and the balance used for repayment of bank debt and working capital.