Breitburn Energy Suspends Distributions on Preferred Shares
Breitburn Energy Partners L.P. (NASDAQ: BBEP) has suspended its monthly distributions on its 8.25% Series A Cumulative Redeemable Perpetual Preferred Units (NASDAQ: BBEPP) and its 8% Series B Perpetual Convertible Preferred Units. The exploration and production firm also said it will defer an interest payment of approximately $33.5 million due Thursday on its 7.875% senior notes due April 2022 and a second interest payment of approximately $13.2 million on its 8.625% senior notes due October 2020.
Under the terms of the two senior notes, Breitburn has a 30-day grace period before an event of default occurs, and the company can pay the interest due on the notes at any time during the grace period. If the company fails to make the payments during the grace period, the notes will have experienced an event of default. At the same time, failure to make the payments result in a default on Breitburn’s revolving credit facility and its 9.25% Senior Secured Second Lien Notes due May 2020.
The company plans to use its grace period “to explore strategic alternatives to strengthen its balance sheet and maximize the value of Breitburn.” It also said it had opened discussions with secured debtholders and has retained Lazard as a financial advisor.
What are Breitburn’s chances? The odds are long. According to Fitch Ratings, the trailing 12 month (TTM) default rate on high-yield bonds is nearly 4% in April, with $14 billion in defaults already scheduled. The TTM default rate would climb to 12% in April, up from 8.3% in March, and the E&P default rate approaches 23%.
Common units of BBEP traded down about 38% early Thursday afternoon to $0.38, a new 52-week low. The high is $6.87. Preferred units of BBEPP traded down about 44% at $2.95, after posting a new 52-week low of $2.91. The high is $23.21.