On January 27, reports emerged about a possible Chapter 11 bankruptcy filing by ION Geophysical Corp. (IO). Consequently, the stock began cascading in the following trading sessions.

During regular trading, the stock took a heavy blow of 53.64% loss at its close of $0.51 per share. IO continued to descend in the after-hours with a further loss of 7.84%. Therefore, the stock was trading at $0.47 apiece in the after-hours on Thursday.

IO’s Possible Bankruptcy Reports

According to reports on multiple sources including Bloomberg, IO is preparing to sell itself in a court-supervised auction. The company may pursue a Chapter 11 bankruptcy protection in the next month. The Chapter 11 filing will allow the company to continue its operations while working on repaying its creditors.

Moreover, no official has so far commented on the revolving reports and the discussions about the filing are not final yet. Thus, there is a possibility of change.

Background

In April 2021, the company restricted its debts but then it failed to fulfill the interest payment on the new bonds on December 15, 2021. As of last month, the company has missed $12.3 million aggregate in bond principal and interest payments. Resultantly, IO entered into forbearance agreements with most of its creditors till February 15, 2022. The company announced the forbearance along with an amendment to its revolving credit agreement on January 14, 2022.

Furthermore, during the last quarterly report, the company announced an outstanding long-term debt principal of $142.7 million as of September 30, 2021.

What to Expect?

Given the grave situation with IO’s outstanding debt and current cash position, the company might file for Chapter 11 Bankruptcy. While this will provide the company with more time for possible solutions to paying its creditors, it is highly unlikely. The company had previously announced its evaluation of possible alternatives to the problem but so far has been unable to do so. Based on the challenging conditions along with material cash burn, it seems rather difficult for the company to be able to pay its creditors.

IO’s Financial Analysis

In Q3 of 2021, IO reported a net loss of $0.5 million ($0.02/share) against $16.6 million ($1.16/share) in Q3 of 2020.

Additionally, the company had revenues of $44.4 million in Q3 of 2021, showing an increase of 125% sequentially and 173% year over year.

On September 30, 2021, IO had cash and equivalents of $24.1 million.

Conclusion

While the company did report improved revenue and loss per share the situation with its outstanding loan and creditors is very serious. Selling IO stock seems to be in the best interest of the investors based on the current situation.