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ATP Bonds Yield Twice Greece as Coupon Looms: Corporate Finance

August 03, 2012

ATP Oil & Gas Corp. (ATPG:US) bonds are yielding twice the rate of Greek government debt three months before the driller has to make an $89 million interest payment, as falling production may leave the company without enough cash.

ATP’s $1.5 billion of 11.875 percent notes due May 2015 fell to 34.1 cents on the dollar yesterday as bondholders organize a group to represent their interests in a potential restructuring, according to two people familiar with the matter. The debt now yields 68 percent, compared with 33 percent for Greece, which relies on international bailouts to stay solvent.

The firm has been battered by production delays as it strives to extract more oil and profits from wells in the Gulf of Mexico. Houston-based ATP won’t have money for the coupon payment on the notes and other planned spending without outside financing, Standard & Poor’s said Aug. 1, as it downgraded the company to CCC, meaning it’s currently vulnerable to default.

“They really have to get over the hump of the November coupon payment,” Oliver Corlett, a New York-based analyst for R.W. Pressprich & Co., said in a telephone interview. “It’s conceivable that they can scrape by, and in the past they have been very adept at raising money.”

While ATP had $224.7 million of cash on March 31, according to a May 10 regulatory filing, that may have dwindled to about $50 million by the end of June as the company paid interest and developed wells, Corlett estimated.

‘Timing Issues’

Isabel Plume, a spokeswoman for the company, didn’t return messages seeking comment.

“ATP has grappled with numerous timing issues, and yet we have not missed an interest payment on our debt,” Paul Bulmahn, the company’s executive chairman, said May 10 on a conference call with analysts and investors to discuss first-quarter earnings.

The driller’s bonds have dropped from 76.5 cents on the dollar three months ago, erasing about $600 million of value, according to data compiled by Bloomberg. Greece’s 35.6 million euros ($43.4 million) of 5 percent notes due March 2019 fell to 27.9 cents on the euro yesterday, Bloomberg data show.

Investors in the driller’s bonds interviewed potential advisers last week, one of the people said at the time, asking for anonymity because he’s involved in the confidential process. ATP’s corporate counsel, Mayer Brown LLP, engaged its restructuring group for advice, the financial newsletter Debtwire reported yesterday. Robert Harris, a spokesman for the law firm, didn’t return messages seeking comment.

Employment Terms

The company named former Dynamic Offshore Resources LLC Chief Executive Officer Matt McCarroll as CEO in June, then said in a regulatory filing six days later that he resigned after failing to reach “mutually agreeable” employment terms.

ATP produced about 2 million barrels of oil equivalents in the first quarter, down from 2.3 million barrels in the last three months of 2011, the company said in a May 9 statement. It generated about 20,000 barrels a day in April, a 1.8 million barrels-a-quarter pace, Leland Tate, its president, said on the conference call.

The company is counting on increased production from some new and reworked wells to increase cash flow and reduce its debt (ATPG:US) burden. The plan may boost production to 16 million barrels in 2013, or 4 million barrels a quarter, according to David Rewcastle, an energy analyst at Source Capital Group in Westport, Connecticut.

Old Hands

“Give it a quarter or two and you’ll see the anticipated production increases kicking in,” Rewcastle said in a telephone interview. “Things can look pretty bleak, but these are old oil hands. They’ve been through this before.”

Since Bulmahn founded ATP in 1991, the company has been drilling in areas with undeveloped reserves in the Gulf of Mexico and around the world. Of ATP’s 194.4 million barrels of oil equivalents in proven and probable reserves, 64 percent are deep-water assets in the Gulf, 33 percent are in the North Sea and 3 percent are in shallower Gulf waters, the company said in a presentation dated April 17.

“The kind of reserves they have, deep-water reserves, are expensive to get out of the ground,” Corlett said.

ATP began raising money to fund drilling by selling interests in its future production in 2009, the company said in the presentation. The company owed about $513 million as of March 31 on the financing, with about $350 million that may be repaid within a year, according to a May 10 regulatory filing. The average effective interest rate on ATP’s royalty interests and other long-term obligations was 18.5 percent as of March 31, according to the May 9 statement.

Management Stake

“They do have a very adverse capital structure,” Corlett said. “A restructuring, as far as the company’s concerned, would be very beneficial.”

Bulmahn and the rest of ATP’s management own about 15 percent of ATP’s equity (ATPG:US), according to the April presentation. They’ll try to avoid a restructuring that would likely wipe out the stock, Rewcastle said.

“It’s not in their interest,” Rewcastle said. “They’re going to do what’s necessary to survive.”

ATP raised $35 million in June by selling a convertible note and warrants to an institutional investor, the company said in a statement. Bulmahn said on the conference call that ATP was in negotiations with Chinese banks for new loans. The company faces “heightened risk of a near-term default,” Christine Besset, an analyst at S&P in Dallas, wrote in an Aug. 1 report.

“The company’s success in executing these deals or finding an alternate source of funding will be critical in solving its short-term liquidity issues,” Besset wrote.

To contact the reporters on this story: Zeke Faux in New York at zfaux@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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