(Bloomberg) -- Canacol Energy Ltd. is looking to negotiate a short-term loan from its creditors as it works to restructure its debt before its cash reserves run dry, people familiar with the matter said.
The Canadian company, which is Colombia’s top private gas producer, is in talks over so-called debtor-in-possession financing, said the people, who declined to be name as the talks are not yet public.
Canacol needs to conclude the deal quickly as output falls and losses mount, but such a loan may create a rift among creditors as it would likely give the new lenders seniority over the others. Apart from $500 million in dollar bonds, the firm has an outstanding secured credit facility with Macquarie, which currently ranks superior to the notes. It also has a revolving credit facility with a syndicated group of banks that expires in 2027.
Canacol didn’t immediately reply to a request for comment.
Since the loss of a major pipeline contract in 2023, Canacol’s production has been steadily declining, reaching levels that triggered an acceleration clause in the Macquarie loan.
Despite its troubles, the company had repeatedly promised investors that it was in a good position to repay its debt, rejecting the idea that it needed a restructuring.
“They were really looking for their lucky strike and it never showed up,” said Daniel Guardiola, an analyst at BTG Pactual in Bogota. “Gas prices were skyrocketing, their EBITDA generation hit record highs, and still they were not able to secure financing from markets. And I think it’s because of lack of credibility.”
Canacol announced it was granted creditor protection in Canada on Nov. 19 and filed for relief under Chapter 15 of the US bankruptcy code the following week.
A group of bondholders are being advised by investment bank Houlihan Lokey. In the main process in Canada, the company is being advised by law firm Gowling WLG, while the banks retained Clifford Chance, according to documents released by KPMG Inc. which is serving as the Monitor in the process.
After years of operational problems, fruitless exploration efforts and bad communication with investors, investors see a potential acquisition as their best hope at recovery.
Ecopetrol’s CEO Ricardo Roa said this week that Canacol wanted a sale, but didn’t elaborate on the current status of the talks.
“There is still strategic value to Canacol’s production and assets,” Seaport Global strategist Bevan Rosenbloom wrote in a note Nov. 25. “Colombia is structurally short natural gas and Canacol is the second largest producer.”
--With assistance from Giovanna Bellotti Azevedo, Vinícius Andrade and Maria Elena Vizcaino.
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