EXCO Resources plummets after earnings, rising liquidity concerns
Shares of oil and gas exploration company EXCO Resources (XCO) are plunging after reporting second quarter financial results on Tuesday evening. The company also cast doubt about its ability to comply with debt covenants. EARNINGS: On an adjusted basis, the company reported a narrower loss than expected of (23c) per share, better than the (27c) loss that analysts were modeling. Revenue of $64M in Q2 was down 40% from last year's level of $106M. RESTRUCTURING PROGRAM: The company is in the midst of a restructuring program to boost its liquidity situation. In late December of 2016, Moody's downgraded EXCO Resources's credit profile on liquidity concerns. "EXCO's downgrade reflects its eroded liquidity position which is insufficient to fully fund development expenditures at the level required to stem ongoing production declines, absent an injection of additional liquidity, the source of which is not readily identifiable, EXCO could face going concern risk as it confronts an unsustainable capital structure," said Moody's at the time. In response to its eroding liquidity and a listing noncompliance notice from NYSE on January 20, the company decided to fend off bankruptcy and bolster its balance sheet by issuing $300M in notes to an investor group. The proceeds from the issuance repaid the outstanding amount under EXCO's credit agreement, transaction fees and expenses, and general corporate purposes. The credit agreement was amended, reducing the borrowing base to $150M, permitting the notes and loans issuance and modifying certain financial covenants. Along with its Q2 earnings report on Tuesday evening, the company updated the progress on its capital structure, saying, "Our liquidity and compliance with debt covenants may be impacted by the outcome of certain litigation and the potential closing of the divestiture of our South Texas properties." Current litigation brought by Enterprise Products and Acadian Gas Pipeline, claiming that EXCO violated sales and transportation contracts could potentially hurt EXCO's ability to meet its debt obligations, EXCO said in a regulatory filing. Additionally, EXCO explained that if it doesn't complete the divestiture of its South Texas properties its liquidity problems will escalate and may result in bankruptcy. On its earnings conference call, EXCO noted the deadline for the transaction has been extended to August 15, but further postponements are possible. PRICE ACTION: Shares of EXCO are down over 15% to $1.30 per share in midday trading.