Extraction Oil & Gas has already entered into a restructuring support agreement with several of its unsecured noteholders. This plan will enable the company to significantly reduce its outstanding debt via a debt-for-equity swap. As a result, these creditors would control a majority of the company's equity following the restructuring. The company hopes to use the chapter 11 process to complete a comprehensive restructuring that will include other debtholders so that it can quickly exit bankruptcy in a stronger financial position. That outcome could see its creditors taking over full control of Extraction's equity, which would render its current common stock worthless.
Several factors contributed to Extraction's need to restructure its balance sheet through bankruptcy. A major catalyst was the significant decline in oil prices earlier this year. Those weaker prices led the company's banks to reduce the borrowing base on its revolving credit facility from $950 million to $650 million. That had a significant impact on Extraction's liquidity since it had already drawn $470 million on that facility.
With its liquidity drying up, Extraction Oil & Gas opted to skip a $14.8 million interest payment last month to buy more time to address its financial issues. However, with the 30-day grace period ending over the weekend, Extraction ran out of time.