Election Not to Make Interest Payment on Unsecured Notes
On April 15, 2020, Ultra Petroleum Corp. (the “Company”) elected to utilize a30-day grace period with respect to, and not to make, the approximate $13.2 million semi-annual interest payment that was due on April 15, 2020 under the Company’s outstanding 6.875% Senior Notes Due 2022 (the “2022 Notes”) and 7.125% Senior Notes Due 2025 (the “2025 Notes” and, together with the 2022 Notes, the “Unsecured Notes”). Under the indenture dated April 12, 2017 governing the Unsecured Notes as a single class (the “Unsecured Notes Indenture”), the Company has a30-day grace period after the interest payment date before an event of default would occur on May 15, 2020. Failure to make the interest payments on the Unsecured Notes when due at the end of such grace period would constitute an event of default under the Company’s (i) Credit Agreement with Bank of Montreal, as administrative agent, and certain lenders thereto (the “Credit Agreement”); (ii) Term Loan Credit Agreement with Barclays Bank PLC, as administrative agent, and certain lenders thereto (the “Term Loan Agreement”); (iii) the 9.00% Cash / 2.00% PIK Senior Secured Second Lien Notes due July 2024 (the “Second Lien Notes”); and (iv) the Unsecured Notes Indenture. The occurrence of an event of default under the Credit Agreement or the Term Loan Agreement would allow the respective administrative agents to declare the Company’s obligations under the Credit Agreement and Term Loan Agreement immediately due and payable and to exercise such administrative agents’ and lenders’ rights under the Credit Agreement and Term Loan Agreement. The occurrence of an event of default under the Second Lien Notes or the Unsecured Notes Indenture would give the trustee or the holders of at least 25% of principal amount of the outstanding notes the option to declare all of the notes due and payable immediately upon such event of default.
Additionally, under the Company’s Credit Agreement and Term Loan Agreement, the Company is required to deliver audited, consolidated financial statements without a going concern or like qualification or explanation. As previously disclosed, the Company’s Annual Report on Form10-K for the year ended December 31, 2019 prepared by the Company’s auditors included a going concern qualification. The financial statements were included in the Company’s Annual Report on Form10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission (“SEC”) on April 14, 2020. Generally, significant indebtedness and extremely challenging current market conditions raise a substantial doubt about the Company’s ability to continue as a going concern.
Going Concern Qualification
The going concern qualification resulted in the Company’s default under each of the Credit Agreement and Term Loan Agreement on April 14, 2020 when the Company delivered its financial statements to the lenders under the Credit Agreement and the Term Loan Agreement, respectively. We expect that we will be precluded from making additional draws on the Credit Agreement unless a waiver is obtained. There is a30-day grace period related to this covenant in each of the Credit Agreement and the Term Loan Agreement. If the Company does not obtain a waiver or other suitable relief from the lenders under the Credit Agreement or the Term Loan Agreement before the expiration of the30-day grace period, an event of default under each of the Credit Agreement and Term Loan Agreement will occur. If an event of default occurs, the lenders could accelerate the loans outstanding under the Credit Agreement and Term Loan Agreement. In addition, if the lenders under the Company’s Credit Agreement and Term Loan Agreement accelerate the loans outstanding thereunder, the Company will then be in a cross-default under the indentures governing the Second Lien Notes and the Unsecured Notes. The acceleration of the payments outstanding under the Credit Agreement or the Term Loan Agreement could allow holders of the Second Lien Notes and Unsecured Notes to accelerate those notes. The Company does not expect to obtain a waiver of this requirement.
The Company does not currently have sufficient liquidity to repay such indebtedness and would need additional sources of capital to do so. The Company could attempt to obtain additional sources of capital from asset sales, public or private issuances of debt, equity or equity-linked securities, debt for equity swaps, or any combination thereof. However, the Company cannot provide any assurances that it will be successful in obtaining capital from such transactions on acceptable terms, or at all, and if the Company were unable to obtain sufficient additional capital to repay the outstanding indebtedness and sufficient liquidity to meet its operating needs, it may be necessary for the Company to seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code or the Canadian Bankruptcy and Insolvency Act, or an involuntary petition for bankruptcy may be filed against the Company in the U.S. or in Canada.
As a result of the Company’s significant indebtedness and extremely challenging current market conditions, the Company believes it will require a significant restructuring of its balance sheet in order to continue as a going concern in the long term. The Company has based this belief on assumptions and estimates which are to some degree subjective and may vary considerably from actual results, and the Company could spend its available financial resources less or more rapidly than currently expected.
