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HighPoint Seeks Bankruptcy Protection to Close Merger Deal

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Zacks Equity Research
·3 min read
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HighPoint Resources Corporation HPR announced that it filed for bankruptcy protection, with the intent that a speedy recovery from financial difficulties will help seal the previously-announced merger deal with Bonanza Creek Energy Inc BCEI.

The company filed a Chapter 11 petition in the United States Bankruptcy Court for the District of Delaware to restructure its debts and obligations, and keep the merger-deal alive. Notably, HighPoint estimated its liabilities to be around $1 billion.

Last November, HighPoint and Bonanza Creek reached an agreement of consolidation in a $376-million deal. The agreement involved merging of the two companies in the Denver-Julesburg (“DJ”) Basin to form a new entity as well as combine their property and production.

HighPoint declared Chapter 11 bankruptcy protection, following the approval of the companies’ shareholders to merge as part of a pre-packaged debt restructuring agreement. Notably, the bankruptcy plan and the merger deal with Bonanza Creek involve $625 million in unsecured debt in exchange for shares in the combined company.

Most importantly, if the restructuring plan goes well, HighPoint shareholders will own 30.4% of the merged company’s stock and up to $100 million in senior unsecured notes issued by the combined company.

Both companies will have an interest in the DJ Basin acreage, with a day-to-day production capacity of 50,000 barrels of oil, liquids and natural gas equivalents per day. The merged entity will be able to generate a free cash flow of approximately $340 million through 2023 to pay off debt and return to shareholders through dividends or share repurchases.

On its part, the transaction will initiate a premier DJ Basin player with a peer-leading expenditure pattern and a sizable rural footprint. The deal also offers HighPoint shareholders the opportunity to engage in a larger DJ Basin producer with an attractive balance sheet as well as a free cash flow profile.

Company Profile

Headquartered in Denver, CO, HighPoint is an exploration and production company, which focuses on the development of oil and natural gas assets primarily in the Denver-Julesburg Basin of Colorado.

Zacks Rank & Other Stocks to Consider

HighPoint currently carries a Zack Rank #2 (Buy).

Some other top-ranked players in the energy space are Chevron Corporation CVX and Exxon Mobil Corporation XOM, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Chevron’s earnings for 2021 are expected to rise 15.6% year over year.

Exxon’s earnings for 2021 are expected to increase 19.3% year over year.

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