Battalion Oil Corp (BATL)

[Mcgill]

Our fair value estimate for Halcon Resources is unchanged at $0.05 per share after the company announced a major restructuring plan. We previously estimated that Halcon's enterprise value was worth less than its $2.9 billion debt load. Our $0.05 per share fair value merely reflected the assumed option value to shareholders of a strong resurgence in crude prices or a meaningful recapitalization (divestiture, joint venture, or a debt exchange, for example). The May 18 restructuring announcement confirms that, subject to approval by affected stakeholders, the firm will eliminate $1.8 billion in debt and $222 million in preferred equity through an accelerated prepackaged Chapter 11 bankruptcy filing. After incorporating these transactions, our cash flow model signals positive equity for the restructured firm to the tune of $120 million. However, much of the eliminated debt will be equitized during the restructuring process, and as a result current stockholders can claim only 4% of this $120 million entity ($0.04 per share). This does not include the additional dilutive impact of numerous warrants being granted to current creditors, but these have a 4-year term and are well out of the money currently, with strike prices translating to $1.33 billion in total equity (more than 10 times our $120 million estimate). Our valuation is further supported by the observation that 4% of the May 18 closing price of $0.97 per share is also $0.04.