Today, investors appear to be flirting with small-capitalization energy player Camber Energy (NYSEMKT:CEI). At the time of writing, CEI stock has appreciated more than 21%, surging to its highest level in more than a week. So what do you need to know?
Camber is a diversified energy company providing commercial and industrial energy solutions to clients all across North America. As a small-cap player, investors have focused on Camber as a leveraged play on energy prices, which have taken a hit of late due to demand-related concerns tied to the omicron variant.
That said, Camber Energy announced a financing agreement today which would see nearly half of its outstanding preferred stock eliminated. Let’s dive into what this announcement means for investors, and why this stock is soaring on the news.
CEI Stock Surges on Announced Refinancing Deal
It appears Christmas came early for Camber Energy investors. As of Dec. 24, the energy company announced it entered into a loan agreement which would see $25 million in convertible debt injected into the company, with a maturity of Jan. 1, 2027. This loan was negotiated at the Wall Street Journal prime rate, with interest due at maturity.
This refinancing deal is pertinent for three key reasons for investors.
First, this deal wipes out all Series C redeemable preferred stock of the company and all secured loans of the company. Essentially, investors in Camber Energy gain assurance that this company will remain solvent, and have the liquidity to operate moving forward. Excess funds from this transaction will be used for working capital purposes.
Secondly, the interest rate is extremely attractive. Camber Energy President and CEO James Doris commented on the deal being perhaps “the most favorable terms the company has been able to negotiate in its history.” The convertible nature of this loan also means that the company’s debt could be swapped for equity at some point. This would be possible if CEI stock surges above $1.50 before the expiry of the loan.
Finally, this loan extends out Camber’s obligations another five years. For investors bullish on where the energy market is headed, having peace of mind for an extended period of time is always a good thing.
Overall, this deal appears to be a big positive for investors. Today, the market is certainly taking this view.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.