Description

Great Western Petroleum’s 12.000% Senior Secured Notes due 2025

Current Price: 88.250

Maturity: 9/1/25

YTM: 15.8%

Principal Amount: $312mm

Thesis

We believe Great Western’s 12% Senior Secured Notes allow you to earn a substantial return while being covered by PDP value at mid-cycle pricing and having a low leverage level. There is the potential to earn a 24% IRR should the bonds trade to par in a year and a 40% IRR should Great Western sell itself by its special M&A call date of 3/1/22 (110 call provision).

At current commodity prices, we expect the Company to generate significant free cash flow and use excess cash to pay down debt and organically de-lever.

Situation Overview

Great Western is a private E&P company with assets in the DJ Basin. Great Western didn’t refinance its old 2021 Senior Notes in early 2020.  Subsequently, COVID-19 hit and the HY markets completely closed. By the time the HY markets reopened, Great Western was staring down a 3/31/21 springing maturity on its RBL due to the 2021 Senior Notes remaining outstanding.

To placate the Senior Notes holders, Great Western had to pursue an out of court recapitalization which entailed:

• Legacy equity holders injecting new equity into the Company
• Preferred Equity converting into Common Equity to avoid them going from PIK to cash pay
• Refinancing the 2021 Senior Notes with these expensive, secured Senior Notes

Data Room Access

Since Great Western is a private company, prospective investors can find the financials by completing the access form and sending it to the following email addresses:

http://greatwesternpetroleum.com/wp-content/uploads/Bond-Vdr-Access-Form.pdf

[email protected]; [email protected];

Chris is the VP of Finance:

Christopher Degner <[email protected]>

Other Details:

https://greatwesternpetroleum.com/investors/

Capital Structure and Valuation

Unfortunately, we can’t paste our Capitalization Table and Valuation work on Great Western as it is a private issuer. We believe the extra step needed to get financials is a reason for the excess return available on the Senior Secured Notes and encourage interested investors to access the data room.

Asset Quality

Great Western has high-quality rock in the DJ Basin that is capable of earning strong rates of return at low commodity prices. As a result, we believe Great Western can maintain current production levels based upon cash flow generated with oil prices in the low $40s. Furthermore, the DJ Basin is a well-established basin and has proven to be a technically easy place to operate. The main challenge to the DJ Basin is the political climate. This is mitigated by the PDP base and permitted inventory backlog that offers a margin of safety for bondholders.

Catalyst

M&A

De-levering

Eventual Maturity