Canacol Secures $67M DIP Financing to Fuel Restructuring Push

Canacol Energy Ltd., Colombia's largest private natural gas producer, has secured a critical $67 million debtor-in-possession (DIP) financing package from an ad hoc group of bondholders to support its restructuring efforts. According to Bloomberg, the financing will provide the company with much-needed liquidity as it navigates its financial challenges and seeks a path to recovery. The DIP facility, comprised of a $45 million term loan and a $22 million line for letters of credit, will be secured by a super-priority charge over the company's assets, prioritizing payments to these lenders ahead of other creditors.

The agreement was announced as Canacol continues its court-protected restructuring under Canada's Companies' Creditors Arrangement Act (CCAA) and a parallel Chapter 15 filing in the U.S. The initial funding of $15 million from the term loan is conditional on court approval, with the remaining $30 million contingent on further milestones and regulatory recognitions. The DIP financing is expected to support a sale process and broader restructuring under the CCAA proceedings.

The DIP financing is a significant step for Canacol, which has faced declining production and mounting financial pressures since losing a key pipeline contract in 2023. The company's production has steadily declined, leading to the activation of an acceleration clause in its secured credit facility with Macquarie. Canacol's troubles have led to a cash crunch, forcing it into creditor protection in Canada and the U.S. Analysts say the deal reflects the urgency to stabilize operations while the company pursues a potential sale or strategic investment.

Why the Standoff Happened

Canacol's financial difficulties began with the loss of a major pipeline contract in 2023, which led to a sharp drop in production and revenues. Despite repeated assurances from management that it was on track to meet its obligations, the company struggled to secure external financing amid growing skepticism about its credibility and communication with investors. Despite record EBITDA, figures did not translate into investor confidence or new capital inflows.

The company filed for creditor protection in Canada on Nov. 19 and shortly thereafter filed for Chapter 15 relief in the U.S. The DIP financing represents a lifeline that allows the company to continue operations while it explores restructuring options.

The bondholders' agreement to provide the funds comes with a super-priority charge, ensuring they are repaid ahead of other creditors, a move that could create tensions among stakeholders.

What This Means for Investors

The DIP financing has significant implications for Canacol's investors and creditors. The company's 5.75% senior unsecured notes due 2028 currently trade at distressed levels, around 19–20 cents on the dollar. The new financing provides some clarity but does not eliminate the risk of further financial deterioration. Investors will be watching closely how the restructuring process unfolds and whether the company can attract a strategic buyer or partner.

Colombia's structural natural gas shortage means Canacol still holds strategic value. Ecopetrol, the country's state-owned oil company, has confirmed interest in a potential acquisition. Analysts believe a sale could offer the best path to recovery for creditors, but no final agreements have been announced. Shares of Canacol have been suspended in Canada since November, and delisting is expected to follow.

The restructuring outcome will depend heavily on the recognition of court orders in both Canada and the U.S. and the company's ability to meet prescribed milestones. If the restructuring stalls or fails, Canacol's financial position could deteriorate further, increasing the risk of insolvency. The company must also navigate a complex legal and regulatory environment in multiple jurisdictions, which adds to the uncertainty.

The market will be closely watching the next steps in Canacol's restructuring process. The success of the DIP financing will not only determine the company's survival but also set the tone for how the broader energy sector manages similar financial challenges in a volatile market environment.