Despite coming in the list of the best hedge portfolios in the market, Memorial Production Partners LP (NASDAQ:MEMP) will reorganize. The hedges didn’t stop the cash flow from businesses dropping to $43 million in the recent quarter. Bankers asked a part of the hedge portfolio be sold and used to compensate the bank line which was even reduced. The firm will emerge as a corporation, hitting another nail in the limited associate model coffin. As of now, the safest income model seems to be a firm like Granite Oil where the debt remains low.
The details
Recently, Memorial Production reported the deals essential to reorganize. It is going to be trailed by a voluntary bankruptcy submission. The indications were many that the firm was moving in this direction. There were the deliberately missed interest payments, the falling stock price, the hiring of legal advisors, and more.
However, for all of the people who consider that one of the most remarkable hedge positions in the market would stop that, there was disappointment. This firm ended the same way like many others. A share of that hedged position will be liquidated to mitigate debt due and the bank line will be lowered accordingly. Also, the unsecured debt will convert to equity and the shareholders will obtain 2% of the reorganized firm and warrants for another prospective 6%.
The hedged position didn’t halt the decline in cash flow. Cash flow in the third quarter was $43 million as against the cash flow of $79 million in the second quarter. It was turning evident that rising prices were not helping the firm irrespective of what the hedge position was.
The cash flow from businesses picture remained poor. Despite all the cost reduction, the hedge cash flow, and the onward preparations, cash flow from businesses remained deficient for the debt load. So though the distribution to investors was well protected, the debt ratios continued out of line. There were just not enough probabilities for the cash flow to adequately recover.
THE MORNING REPORT
Start your workday the right way with the news that matters most.
Your information is 100% secure with us and will never be shared Disclaimer & Privacy Policy
