Southwestern Energy's New Term Loan Won't Solve Financing Needs

Jefferies analysts believe
Southwestern Energy CompanySWN
's fresh-term loan will not have the potentials to solve its financial requirements.

Although the brokerage lifted its price target to $5.0 from $4.0, it maintains its Underperform rating. However, the stock traded more than 12 percent higher at one point on Tuesday.

Jefferies analysts, led by Jonathan Wolff, think Southwestern Energy's assets have witnessed a drop. Therefore, there is urgent need for a significant equity issuances or a sale of assets. The analysts further noted the company struck a fresh $1.934 billion secured credit facility due in December 2020.

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"SWN had made clear its desire to use collateral to secure loans due to its weakened credit metrics. But the new agreements come at a high cost with a large amount of the facility immediately drawn ($1.191 billion term loan) and with very strict new covenants. Term Loan Has Significant Financing Cost: The new agreement gives SWN ~$900 million of balance sheet cash and extinguishes $285 MM of outstanding (unsecured) revolver balances," Jefferies elaborated.

Jefferies did issue a word of caution: The company needs to retain a minimum of $300 million in liquidity. This might increase to $500 million under some circumstances. There is also an anti-hoarding provision that makes the Southwestern to have unrestricted cash on hand of more than $100 million, which would be used to pay down credit facility borrowings.

Southwestern Energy closed Tuesday's regular trading session up 11.84 percent at $13.89.

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