Atlas Resource Partners (NYSE:ARP) took another step on the path towards Chapter 11 with its decision not to make the first installment payment to deal with its borrowing base deficiency. This does not trigger a Chapter 11 filing yet, since Atlas has entered into forbearance agreements with credit facility lenders and noteholders that last until July 27. However, I believe that a Chapter 11 filing is probably inevitable and that Atlas is just getting some time to negotiate a restructuring agreement prior to filing. A look at Atlas's unhedged breakeven point suggests that it probably needs to convert all of its unsecured debt to equity to be a viable company in the long run.
Forbearance Agreements
A number of oil and gas companies (such as Magnum Hunter(OTCPK:MHRCQ), Ultra Petroleum (OTCPK:UPLMQ) and Connacher Oil and Gas(OTCPK:CLLZF)) entered into forbearance agreements in 2015 and 2016 and the ultimate outcome in most cases appears to be a bankruptcy filing. In Atlas's case, the forbearance agreements appear designed to give it more time to negotiate a restructuring agreement before entering Chapter 11. With $32 million in cash on hand, a $143.7 million borrowing base deficiency that it needs to repay between July and October and around $28 million in unsecured bond interest payments due in July and August, it appears unlikely to be able to avoid restructuring soon.
