Why Bonanza Creek Energy Inc (BCEI)’s Stock Slid on Tuesday?

Bonanza Creek Energy Inc (NYSE:BCEI) is 26% lower today after the company filed an 8-K stating that its borrowing base under credit agreement was reduced to $200 million from $475 million. Because the company had $288 million in borrowings outstanding, Bonanza Creek Energy Inc (NYSE:BCEI) as of May 2016 has a borrowing base deficiency of $88 million. The company has the following options to address the deficiency:

(A) within 20 days after the Deficiency Notice Date, deliver to the Administrative Agent written notice of the Company’s election to repay Advances such that the Borrowing Base Deficiency is cured within 30 days after the Deficiency Notice Date; (B) pledge, within 30 days after the Deficiency Notice Date, additional Oil and Gas Properties acceptable to the Lenders, which the Lenders deem sufficient in their sole discretion to eliminate the Borrowing Base Deficiency; (C) within 20 days after the Deficiency Notice Date, deliver to the Administrative Agent written notice of the Company’s election to repay Advances in six monthly installments equal to one-sixth of the Borrowing Base Deficiency, with the first such installment due 30 days after the Deficiency Notice Date and each following installment due 30 days after the preceding installment; or (D) within 20 days after the Deficiency Notice Date, deliver to the Administrative Agent written notice of the Company’s election to combine the options in clause (B) and (C) above, and indicating the amount to be repaid in installments and the amount to be provided as additional Collateral.

Hedge fund interest in Bonanza Creek Energy Inc (NYSE:BCEI) shares was flat at the end of last quarter and the stock didn’t manage to capture the attention of many investors. This is usually a negative indicator. At the end of this article we will also compare BCEI to other stocks, including Jason Industries Inc (NASDAQ:JASN), Mesabi Trust (NYSE:MSB), and Alimera Sciences Inc (NASDAQ:ALIM) to get a better sense of its popularity.

To most shareholders, hedge funds are seen as worthless, outdated investment vehicles of the past. While there are more than 8000 funds trading at the moment, Our experts look at the moguls of this club, around 700 funds. These investment experts watch over the majority of the hedge fund industry’s total asset base, and by watching their inimitable stock picks, Insider Monkey has figured out numerous investment strategies that have historically outpaced the broader indices. Insider Monkey’s small-cap hedge fund strategy outperformed the S&P 500 index by 12 percentage points annually for a decade in their back tests.

At Q1’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions). The next page takes a closer look at which funds held shares of Bonanza Creek Energy heading into the second quarter.

According to Insider Monkey’s hedge fund database, Jeffrey Tannenbaum’s Fir Tree has the largest position in Bonanza Creek Energy Inc (NYSE:BCEI), worth close to $3.2 million, comprising 0.1% of its total 13F portfolio. The second largest stake is held by Renaissance Technologies, led by Jim Simons, holding a $2.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish encompass Gregory Fraser, Rudolph Kluiber, and Timothy Krochuk’s GRT Capital Partners, Jeffrey E. Eberwein’s Lone Star Value Management and Israel Englander’s Millennium Management.

On the other hand, there was a specific group of fund managers who were dropping their positions entirely in the fourth quarter. At the top of the heap, David Costen Haley’s HBK Investments cut the largest position of the 700 funds tracked by Insider Monkey, comprising an estimated $9.7 million in stock. John Thiessen’s fund, Vertex One Asset Management, also dropped its stock, about $7.4 million worth.

Let’s now review hedge fund activity in other stocks similar to Bonanza Creek Energy Inc (NYSE:BCEI). We will take a look at Jason Industries Inc (NASDAQ:JASN), Mesabi Trust (NYSE:MSB), Alimera Sciences Inc (NASDAQ:ALIM), and InfuSystem Holdings, Inc. (NYSEAMEX:INFU). This group of stocks’ market values match BCEI’s market value.

As you can see these stocks had an average of six hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $12 million in BCEI’s case. Jason Industries Inc (NASDAQ:JASN) is the most popular stock in this table. On the other hand Alimera Sciences Inc (NASDAQ:ALIM) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Bonanza Creek Energy Inc (NYSE:BCEI) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

Disclosure: None