GMX Resources Inc. said Monday it has suspended payment of quarterly dividends on its preferred stock “to preserve capital and improve liquidity.”
Monday's announcement affects the Oklahoma City energy company's 9.25 percent Series B cumulative preferred stock. The dividend is suspended until further notice, including the payout that was expected April 1.
Preferred stock dividends can be delayed, but they cannot be canceled.
A GMX Resources spokesman did not reply to requests for comment Monday.
The announcement comes a week after GMX said it missed an interest payment on its senior secured second-priority notes due 2018. The company said on March 4 that it had to make the payment within 30 days to avoid defaulting on the debt.
Tulsa money manager Jake Dollarhide said it appears GMX plans to pay the senior note interest with the money it was scheduled to use for the preferred dividend.
“This is a highly leveraged company,” said Dollarhide, CEO of Tulsa-based Longbow Asset Management Co. “There are assets there and a talented management team. It seems like they're doing the right things, but this is not a cash-rich company.”
In separate filings Monday, GMX disclosed that New York-based GSO Capital Partners and New Jersey-based Chatham Asset Management have bought stakes in the company.
GSO said it paid more than $1.2 million on Dec. 7 for a private placement of nearly 520,000 shares, or 7 percent of GMX stock. Chatham said it paid more than $1.4 million for more than 505,000 shares, or 6.8 percent of GMX.
Both investors stated that in light of GMX's “current liquidity and cash needs,” they have engaged in preliminary discussions with GMX and its directors “concerning any potential transactions that may be deemed to have the purpose or effect of changing or influencing control” of GMX.
The investors also said they have the right to talk with management and directors about “operational, strategic, financial or governance matters.”
Monday's announcements come a week after the New York Stock Exchange warned GMX that it is out of compliance because its market capitalization has been less than $50 million over 30 consecutive trading days. GMX now has 45 days to submit a plan detailing how it intends to comply with the stock exchange's continued listing standards within 18 months.
The energy company has seen its stock price tumble 86 percent in the past year. The stock closed down a penny Monday at $3.23 a share, giving the company a market cap of $19.8 million.
Falling from the New York Stock Exchange could make the company's problems even more difficult to overcome, said Greg Womack, president of Womack Investment Advisers Inc.
“Delisting doesn't necessarily mean that a company is going to go bankrupt,” Womack said. “However, delisting can make it more difficult for a company to raise money, and in this respect, it sometimes is a first step toward bankruptcy.”
Like most natural gas companies, GMX has struggled in recent years to refocus to more profitable oil. While praising the company's efforts in oil-rich basins, Womack said GMX is facing a problem with cash flow.
“It's hard to put money into potentially producing assets when you don't have the cash to pay the bills,” he said.
CONTRIBUTING: Jay F. Marks, Business Writer