Vanguard Natural Resources, LLC (NASDAQ:VNRAP) shares managed to chalk up an 18.21% gain to $3.57 on Wednesday but risks returning these wins after the company shared that its borrowing base was cut by 26%. This leaves the company with a $103.5 million borrowing base shortfall, although it does have enough excess cash flow to pay this down over six months.
On a positive note, the company is able to benefit from the recent run in commodity prices, with WTI crude oil up to $50.50/barrel and Brent crude oil rallying past $52/barrel. This should allow the company to enjoy better cash flow levels in the current quarter and for the coming months.
As it is, Vanguard Natural Resources has $1.424 billion in outstanding borrowings and owes another $4.5 million in outstanding letters of credit. The borrowing cut from $1.8 billion to $1.325 billion will leave Vanguard Natural Resources to make around $17.3 million in monthly payment installments starting this June 27 to cover the shortfall. Analysts project the company to make around $18 million to $20 million each month should the current trend in commodity prices persist.
Keep in mind, however, that the company has a $50 million minimum liquidity clause as a compromise with its lender group. This means that a default would occur if the company’s pro forma liquidity after any payments for principal, accrued interest and fees would fall below $50 million. As of May 2016, Vanguard Natural Resources has had $40 million in cash but could bump this up to $50 million or higher with the recent rally in energy prices.
Vanguard Natural Resources is focused on the acquisition and development of oil and natural gas properties in the United States, owning oil and natural reserves primarily located in over 10 operating basins. It also owns working interests in approximately 14,460 gross productive wells and approximately 881,510 gross undeveloped leasehold acres surrounding its existing wells.
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