Shares of Ultra Petroleum Corp (OTC:UPL) were down more than 12% by 10:30 a.m. EDT on Wednesday after the natural-gas driller was unable to strike a deal with its lenders on the terms of a potential transaction involving its term loan. That latest issue pushed its year-to-date plunge to nearly 88%.
Ultra Petroleum said that it held discussions with certain holders of its senior secured first-lien term loan about a potential transaction. However, the parties were unable to reach an agreement and have ceased negotiations. As a result, the company will need to continue meeting the terms of the $975 million loan that matures in 2024.
In addition to that, the company also disclosed that lenders cut the borrowing base on its credit facility by $100 million, setting it at $1.3 billion. However, with the term loan tied to that base, the company now only has $325 million available to it on its credit facility, which had $58 million of outstanding borrowings as of the end of the second quarter. That's a dangerously tight liquidity level for the company. While Ultra Petroleum expects to generate free cash flow this year, even after investing $400 million into its drilling program, investors are growing increasingly concerned about the company's financial situation.
With lenders unwilling to bend and the company's liquidity tightening up, there's a growing possibility that Ultra Petroleum might declare bankruptcy once again. That's why investors should steer clear of this natural-gas stock until the company can prove that it has the funding needed to operate, as well as a drilling program that can deliver consistent results.