UPDATE: Stifel Downgrades Vanguard Natural Resources (VNR) to Sell
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(Updated - September 19, 2016 9:01 AM EDT)
Stifel downgraded Vanguard Natural Resources (NASDAQ: VNR) from Hold to Sell with a price target of $0.50. Analyst Brian J. Brungardt, Jr highlighted liquidity concerns, and he anticipates FY17 covenant relief will be needed.
"As we noted in our May upgrade note, we viewed the partnership successfully navigating the spring redetermination with a level of manageable overdrawn capacity, However, as we also noted we viewed '2H16 at risk should commodity prices not improve and the partnership face another reduction during its fall credit redetermination'," said Brungardt. "We view the commodity price outlook as neutral to negative relative to the end of May when the partnership completed its spring redetermination. Accordingly, we anticipate the partnership faces another haircut to its credit facility if prices remain in the current trading range when it undergoes the fall redetermination. Given the hedges in place, we anticipate the partnership will have a tougher ability to make significant deficiency payments in FY17 relative to their current ability."
The analyst added, "As we have previously discussed, we continue to anticipate the partnership will need covenant relief in FY17 from its current covenant of total leverage less than 4.5x. We view the decision ultimately at the hands of the lending group with regards to future covenant relief. That being said, we anticipate the partnership may face incremental challenges to receiving covenant forgiveness if it is already deemed to be overdrawn on the fall redetermination. While we forecast the partnership exceeding the 4.5x covenant in early FY17, we note the partnership’s MLPA presentation (May 2016) shows estimated December 31, 2016 net total leverage of 5.0x (may not be compatible with leverage calculations allowed under credit agreement)."
Shares of Vanguard Natural Resources closed at $1.30 yesterday.
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