Strategy For Cash Raised Unclear, Bill Barrett Downgraded

Wunderlich Securities has downgraded Bill Barrett Corporation BBG to Hold from Buy, saying that no clear path mentioned for the use of recent funds raised, while the stock too has appreciated of late.

Equity Surprises

The brokerage is surprised with the equity issue, which adds $109.7 million cash to the balance sheet — it already had plenty of dry powder and nothing drawn on its credit facility.

“As such, the timing of the deal was a bit curious, in our view, and without an understanding of the use of cash, our per share numbers come down,” analyst Jason Wangler wrote in a note.

Wangler rued that though the company has talked in the past of cutting debt or added activity, neither has been addressed yet.

With the equity raise complete, Bill Barrett now has over $200 million in cash and the undrawn credit facility that provides ample liquidity for the company.

Ample Leverage

“That said, with $715 million of bond debt, there is still ample leverage and interest expense that hasn't been addressed and the midstream payments add another layer of expense,” Wangler added.

Further, the analyst noted that Bill Barrett's managed production of its Niobrara wells should delay a companywide production response.

Wangler also cut his price target to $8 from $10, while the shares closed Wednesday’s trading at $6.83.