California Resources cap structure jumps on surprise earnings beat

California Resources (CRC) bonds moved up today after the exploration and production company surprised investors by reporting positive adjusted net income and handily beating analyst expectations, said a trader and a buysider.

“The company beat expectations by a long shot,” said a trader.

CRC’s CCC+/Caa2 rated USD 2.25bn 8% second lien secured notes due 2022 jumped nearly four points to trade at 89 yielding 11.112%, from 85.375 and 11.263% before the earnings, which came out after market close yesterday. The company’s stock traded today at USD 31.95 for a market cap of USD 1.441bn, up 23.58% from yesterday’s close.

The company’s 1Q EPS of USD 18 cents per share substantially beat consensus analyst expectations of negative USD 75-83 cents. Quarterly revenue increased 3.2% year-over-year to USD 609m, while adjusted EBITDAX rocketed 61% YoY to USD 250m.

“They have sequential production increases, which I think is often overlooked in the narrative,” said the buysider, adding that he expects CRC to continue de-levering.

“They did not get killed by their hedges, unlike some other smaller E&P companies,” the trader said. CRC’s realized crude prices, including the effect of settled hedges, increased by 25% per barrel during the quarter, to USD 62.77, versus 1Q17.

The company in February repaid USD 297m of revolver borrowings, and then made several repurchases of its second lien notes at a discount, paying USD 79m for USD 95m in principal, according to CFO Mark Smith on the earnings call yesterday.

The company will continue to be opportunistic about further buybacks, he added. CEO Todd Stevens reiterated that the company aims to de-lever by both reducing debt and continuing to increase earnings.

CRC generated USD 61m in free cash flow during the quarter.

The company also completed an acquisition of Chevron’s assets in the Elk Hills field of San Joaquin, California, in April with USD 460m cash and 2.85m CRC common shares. The acquisition is expected to bring USD 5m of operational savings and USD 15m of additional synergies annually and to be fully operational by the second half of 2018.

CRC has been active in liability management and the monetization of assets. It entered a joint venture with Ares Management in February, in which Ares invested USD 750m. Late last year, the company raised a new USD 1bn term loan and obtained a credit facility amendment providing covenant relief.

2018 Debtwire

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