Legacy Reserves' Second Lien Term Loan 'Not Cheap but Needed,' Says Stifel

A day after Legacy Reserves LP LGCY disclosed second lien term loan of a maximum of $300 million, Stifel termed it as "not cheap." However, the firm thinks the company needed it badly.

Following the move, analyst Brian Brungardt upgraded the stock from Sell to Hold and boosted the target price from $0.50 to $1.7. On Wednesday, the stock traded between $1.53 and $1.95 after the credit facility announcement. The analyst thinks the transaction is incrementally positive for Legacy Reserves.

In a note, the brokerage said, "We view that risk as largely removed with new access to liquidity. Additionally, we anticipate the partnership's previous disclosure that its hedge counterparties were reluctant to add incremental commodity hedges has been resolved given the requirement the partnership must hedge at least 75% of its PDP production through FY18."

Stifel noted that the company would use $60 million to repay its outstanding debt and transaction charges. The credit facility comes at a price of 12 percent yearly interest rate apart from two percent upfront fee.

As the company would announce its results on November 3, the brokerage indicated it would update the outlook based on the management and the operational results of the third quarter.

At last check, the stock gained 33.54 percent to $1.82.