What: Shares of Halcon Resources Corp (HK) were up by more than 14% in midmorning trading today. Fueling the surge was an announcement that the company had agreed to another debt exchange with creditors. As a result of the exchange, the company reduced its total long-term debt by $548 million.
So what: Halcon Resources is issuing $1.02 billion of new 13% third lien senior notes due in 2022 in exchange for $1.57 billion of outstanding notes. Those outstanding notes include:
- $497.2 million of its 9.75% Senior Unsecured Notes due in 2020
- $774.7 million of its 8.875% Senior Unsecured Notes due in 2021
- $294.3 million of its 9.25% Senior Unsecured Notes due in 2022
The net result of the exchange not only reduces its total outstanding debt, but it also reduces Halcon's annual cash interest expense by $12 million.
Today's exchange is another in a series of moves by the company to bolster its liquidity, reduce its outstanding debt, and cut its interest payments to better position the company for a long-duration downturn in the oil price. That said, the company still has more work to do, as CEO Floyd Wilson said earlier this year that the appropriate leverage for the company "would be at least a third less than we have," which equated to more than $1 billion in debt reduction.
Now what: Halcon Resources is clearly making some progress on reducing its debt, which is why shares are soaring today. However, it still has a long-term sustainability problem as it will struggle to grow production and manage its current balance sheet at current oil prices. Needless to say, it has much more work to do both to reduce costs and right-size its balance sheet if oil stays lower for longer.
