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SAExploration restructure related to Alaska oil tax credit payments
Seismic company SAExploration restructured in June and the company said bondholders participating in the financing would “provide new loan funding of up to $30 million to fund expected cash needs until SAE can monetize its tax credit-related account receivables.”
Alaska tax credits were not the only reason behind the restructuring. SAE has noted in recent reports to the Securities and Exchange Commission that its business is affected by worldwide demand for oil and natural gas, expectations about future prices, global economic conditions and the ability of exploration and production companies to generate funds.
But the company specifically noted changes in Alaska’s oil and gas tax credit system and said those changes may have a significant impact on the level of exploration spending within the state and have “negatively affected” SAE’s “current liquidity position.”
Driven by falling oil prices, production and revenues the state of Alaska has changed how it handles payout for its oil and gas tax credit program. When it had adequate revenues the state was paying companies for oil and tax credits quickly, and companies were using the prospect of receiving those credit payments to obtain financing. The state is now paying out the minimum allowed by statute for each fiscal year.
Third-party loans The rate at which tax credits are received doesn’t just affect the companies applying for the credits.
SAE said certain of its Alaska customers have received tax credits for seismic acquisition work done by SAE, and have used proceeds from third-party loans secured by those tax credits to pay accounts receivables due to SAE.
It told the SEC that “Historically, applicants have been able to quickly monetize Tax Credits before the issuance of the Tax Credit certificates and remit prompt payment to us by securing a loan from a financial institution secured by the Tax Credits.” But with the state’s budget deficit, there are delays in state payment of tax credits “compared to historical timing” as well as concerns about changes in the program.
“As a consequence of this uncertainty, we believe that many, if not all, third-party financial institutions have suspended lending against Tax Credits prior to issuance of a Tax Credit certificate,” which has “materially and adversely affected” the ability of SAE’s customers to pay it in a timely fashion.
As of the end of 2015, SAE had an account receivable of some $50 million due from one customer, expected to increase because of ongoing work to some $88 million by the end of March, it told the SEC.
SAE said the customer had worked on possible monetization solutions, but was unable to successfully monetize its tax credits and on April 22, assigned $51.6 million of tax credits for completed work to SAE, so SAE could seek to monetize the credits and apply resulting cash to the customer’s overdue accounts receivable.
$95 million By June 30, SAE said, its largest account receivable from a single customer was $95 million, representing 77 percent of consolidated accounts receivable. And, the company said, as it had previously disclosed, “this customer was relying on monetizing of tax credits under a State of Alaska tax credit program,” either from the state or from third-party financing, to satisfy the accounts receivable.
Because the customer couldn’t monetize the tax credits it assigned SAE $51.6 million on April 22 and an additional $21.3 million on July 27, so SAE can seek to monetize the credits.
The company said there continues to be uncertainty regarding timely payment by the state and said that while it continues to explore options to monetize the tax credit certificates, “including an option to sell the certificates in the secondary market at a discount to purchasers that are able to apply the certificates to reduce their own Alaskan tax liabilities,” there is a risk that any monetization “will reflect a substantial discount and may be insufficient to fully replay the customer’s outstanding account receivable,” requiring SAE “to record an impairment to the amount due from the customer.”
- KRISTEN NELSON
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