Even though Vanguard Natural Resources, LLC (VNR) has watched its price-per-unit amount drop by more than 50% since the beginning of the year, earlier in this the third week of September, 2016, the upstream master limited partnership heard favorable news from its lenders. Vanguard’s banks only cut its borrowing base from $1.8 billion down 26% to $1.325 billion, a number significantly less than many comparable producers in the oil and gas industry, some saw their lenders cut borrowing bases by up to 40% in recent months. (See also: Away From Coal (or Diesel) Toward Gas.)

As a result of the leniency of Vanguard’s crediting banks, the company looks to have averted bankruptcy for the time being, a reality many of Vanguard’s competitors have suffered or are suffering.

In anticipation of the cut, Vanguard hustled to liquidate assets and reduced its debt by $276 million from $1.7 billion to $1.424 billion, a proactive move that may have factored in to its lending banks minor vote of confidence.

Still, Vanguard only has $40 million in cash on hand, which means it has a deficiency of $103-plus million. But, the company made an agreement with its lenders to pay the deficit in six installments over the next six months. The money to repay the deficit is expected to come from cash overflow generated by its hedges in the oil and gas sector.  

During Vanguard’s second-quarter conference call with investors, CFO Richard Roberts addressed the state of the company and its biggest hurdle in the coming months: the reserve-based credit agreement Vanguard has with lenders. Vanguard’s reserve-based credit agreements give its lenders rein to determine its borrowing base every six months. Lenders can adjust the borrowing base every 180 days at their own discretion.

As such, even if commodities prices rise and the energy sector begins to recover, that does not necessarily mean Vanguard’s banks will raise the company’s borrowing base. Hypothetically, the banks could continue to lower the company’s borrowing base even if Vanguard unit prices increase dramatically and the energy sector becomes a bull market.

And, without the additional capital to operate the 25 acquisitions Vanguard spent $5 billion to build, there is a good chance the company will go belly up.

News of Vanguard’s moderate win did little to heighten interest in the company. At closing on the 22nd of September, 2016, Vanguard stock was at $1.08, up only .93%.

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