I3 January 2015 HY Corporate Credit Energy Samson Resources Relative Value Samson had a vulnerable credit profile even before the current weakness in the commodities market given its high leverage levels and the modest quality of its asset base. Nevertheless, we had a constructive view on the company for two reasons, the company had a good proved asset (or PV-10) coverage (relative to its yield levels) and we expected an equity infusion by the sponsors as part of the restructuring of its business. With the sharp downward shift in the commodity market, the first contention is not valid given the substantial erosion in PV-10 value. As regards the second, the sharp depletion in the value of its net assets largely rules out the possibility of an equity infusion. The $2.25 billion Senior Notes '20 currently trade in the 30s, which implies the equity value of the business is negative -$1.5 billion. Given this it does not make economic sense for the sponsors to invest equity into the business. Therefore, the credit is now basically driven by the outlook for fundamentals, which is clearly precarious. Leverage levels are already at 5.5x and this is set to worsen further over the next two years to 9.4x on earnings weakness. We see EBITDA deteriorating meaningfully from FY 14E levels of $622 million to $496 million in FY 16E - based on flat production levels and weaker realization. The lower EBITDA levels are not sufficient to meet its maintenance levels capex (excluding capitalized interest) of $630-$700 million. Moreover, the company also has a high annual interest burden of -$290 million. Overall, we are seeing a FCF burn of close to $950 million over the next two years - i.e. a business which cannot even sustain maintenance level capex. Also worrying, current liquidity is just $434 million - the company will run out of cash by 1H 16 unless there is an expansion in the borrowing base (we are assuming a $500 million addition to its credit facili