|Shares Out. (in M):||1,000||P/E||0||0|
|Market Cap (in $M):||1,000||P/FCF||0||0|
|Net Debt (in $M):||532||EBIT||0||0|
All values in C$ unless otherwise stated
Canbriam Energy (“Company”) is a private integrated natural gas producer focused on the Montney formation in northeast British Columbia. The Company was formed in 2008 after a management team led by Paul Myers, former CEO of Espirit Energy Trust, secured a US$300mm commitment from Warburg Pincus and ARC Financial Corp. to “pursue the acquisition, exploration and development of oil and gas interests in certain onshore regions of Canada and the United States.” Since 2008, Canbriam has built a significant production, land and infrastructure base.
Canbriam’s US$350 million 9.75% 2019 senior unsecured bonds trade at 86 cents on the dollar which equates to a yield-to-maturity of 26%. This less than one-year paper has traded down 14pts on no company specific news and has a limited buyer base due to its Caa1 rating from Moody’s and a CCC- rating from S&P (mandate restrictions). Along with the trading technicals, I believe general negative sentiment towards Canadian energy names and, specifically, Canadian natural gas names, has led to a situation where the baby has been thrown out with the bathwater. There is also a fear that Canbriam will be unable to refinance these bonds come November 2019, but I believe this fear is misplaced as the Company has a number of options at its disposal.
Canbriam is backed by an all-star group of equity sponsors. The sponsors are:
Based on various press releases through the years, I estimate that since Canbriam’s founding in 2008, the equity sponsors have provided approximately $1.0 billion of equity capital. Importantly, Canbriam’s sponsors provided $100mm of equity (likely on a prorata basis) in June 2017 - prior to Suncor joining the sponsor group. To my knowledge, none of the sponsors have ever taken out capital.
To put this equity amount into context, Canbriam has $542 million of debt outstanding (assuming $80mm drawn on the credit facility per Moody’s) – with the majority of the outstanding debt being the 9.75% 2019 senior unsecured bonds.
Source: Company Reports
Suncor Energy, one of the largest energy producers in Canada, joined the sponsorship group in February 2018. Suncor vended in 123,000 acres of mineral land holdings in northeast British Columbia and $52 million in cash for a 37% equity interest in Canbriam. In addition, Suncor joined Canbriam’s board with two representatives. Adding Suncor to the mix took the quality of Canbriam’s equity sponsorship group to the next level. Suncor has a market capitalization of $68.7 billion and is rated Baa1/A-.
In its Q1 2018 financials, Suncor recorded the investment in Canbriam at $277 million which implied an equity value to Canbriam of ~$750 million. Utilizing Suncor’s valuation of at 100% of $750mm implies a significant equity cushion below the debt stack. Keep in mind this transaction occurred only eight months ago.