Analyst View: BMO keeps Belden & Blake as speculative buy

New York, Oct. 22 - BMO Nesbitt Burns affirmed its speculative buy rating on Belden & Blake's 9 7/8% senior subordinated notes due 2007 (Caa3/CCC-).

BMO high yield oil and gas analyst John White said the recommendation is based on what he sees as strong relative value, a base of long-lived stable production and a capable management team with experience of previous commodity price downturns.

The Belden & Blake notes were recently quoted at 79 for a yield to worst of 15.59%.

"Among the credits in our higher leverage peer group, Belden is better suited than most to survive a prolonged downturn in the natural gas markets, primarily due to its long-lived stable production," White wrote in a new report.

He also noted that current management is essentially the same team as that which guided the company through its late 1999/early 2000 liquidity crisis. Low gas prices and high bank borrowings resulted in an overage on the borrowing base for its revolving credit line, White said. The problem was resolved by asset sales and obtaining a new lender.

"We believe, due to the borrowing base calculation and availability, the risk of trouble with the current credit facility is substantially lower than the company's previous experience," White added.

Using a downside projection of $2.00 per MMBtu for gas and $16 per bbl for oil in 2002 and assuming 6% lower production, White forecasts Belden & Blake will have interest coverage of 2.1 times and debt leverage of 4.9x in 2002.

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