Yahoo Finance Legacy Reserves Is the Most Leveraged among Peers
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Vanguard Natural Resources
Vanguard Natural Resources (VNR) had $2.2 billion of total outstanding debt at the end of the first quarter. The partnership’s debt has increased in the recent quarters driven by its merger with LRR Energy and Eagle Rock Energy Partners. The partnership’s debt-to-adjusted EBITDA ratio stood at ~5.4x at the end of the first quarter. Debt-to-adjusted EBITDA reflects how easily a company can repay its debts from its operational earnings and available cash on hand. VNR’s leverage might remain unchanged or decline slightly by the end of 2016.
Memorial Production Partners
Memorial Production Partners (MEMP) has $2.0 billion of debt on its balance sheet. The partnership recently completed a redetermination of its credit facility borrowing base, which resulted in the addition of new terms, including “maximum first lien secured leverage covenant of 3.25x,” an interest coverage ratio of 2.5x, and a current ratio of 1.0x.
According to MEMP, the partnership was in compliance with these terms by the end of 1Q16. A significant decline in the partnership’s EBITDA in the coming quarters could lead to a breach of these covenants. However, given MEMP’s strong hedge positions, its EBITDA is expected to remain unaffected by the decline in commodity prices. We’ll look at MEMP’s hedges in the next article.
EV Energy Partners
EV Energy Partners (EVEP) has $665.8 million of outstanding debt on its balance sheet, which resulted in a debt-to-adjusted EBITDAX (earnings before interest, taxes, depreciation, amortization, and exploration expense) ratio of 4.0x at the end of 1Q16. Similar to MEMP, EVEP went through a borrowing base redetermination in April 2016. This resulted in the addition of new covenants including senior secured funded debt to EBITDAX of less than or equal to 3.0x in 2016 and an interest coverage ratio of greater than or equal to 2.5x in the first three quarters of 2016. As of March 31, 2016, EVEP was in compliance with these covenants.
Legacy Reserves
Legacy Reserves (LGCY) has $1.2 billion of outstanding debt on its balance sheet, which resulted in a debt-to-adjusted-EBITDA ratio of 6.4x at the end of the first quarter of 2016. LGCY’s credit agreement requires a first lien debt-to-EBITDA ratio of less than or equal to 3.5x in 2016. As of March 31, 2016, the partnership was in compliance with all the covenants under its credit agreement. However, LGCY could breach these covenants due to a decline in earnings in 2016. LGCY announced an exchange of “$15 million aggregate principal amount of their outstanding 8% Senior Notes” for 2,719,124 limited partner units to lower its debt.
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