/NOT FOR DISTRIBUTION TO UNITED STATES NEWS WIRE SERVICES OR FOR
DISSEMINATION TO UNITED
STATES/
CALGARY,
Jan. 30, 2015 /CNW/ - Connacher
Oil and Gas Limited (CLL – TSX; "Connacher" or the "Company")
announced today a proposed recapitalization transaction (the
"Recapitalization") aimed at significantly reducing the Company's
debt and annual interest expense, and providing additional
liquidity to fund ongoing operations.
The Recapitalization provides for, among other
things:
- Exchange of approximately C$1.0
billion of Connacher's debt for common shares of Connacher,
including accrued and unpaid interest;
- The issuance by Connacher of US$35
million principal amount of new second lien convertible
notes due August 31, 2018 (the "New
Convertible Notes");
- The Company will have the option to accrue and compound
interest payments due on the New Convertible Notes;
- At the option of Connacher, the funding of a new C$30 million first lien term loan facility ("New
Term Loan Facility") to replace Connacher's existing C$30 million revolving credit facility;
- Reduction of annual interest expense by approximately
C$80 million; and
- The Existing First Lien Term Loan will be unaffected.
Additional details regarding the
Recapitalization, including the terms of the New Convertible Notes
and New Term Loan Facility are contained in the summary term sheets
attached to this news release (the "Term Sheets").
The Recapitalization is the result of the
Company's initiative, announced December 1,
2014, to devise and implement a strategy to address its
liquidity and capital structure. The recent extraordinary shift in
commodity prices has severely constrained Connacher's ability to
generate cash flow in a context where the Company has a significant
debt burden. A reduction in outstanding indebtedness and
corresponding interest expense and infusion of new capital is
necessary in order to preserve substantial value in the resources,
assets and operations of the Company and positions Connacher to
regain access to growth capital when commodity markets improve.
The Recapitalization has the support of an ad hoc
committee (the "Committee") of holders of existing second lien
secured notes (the "Existing Notes") (the "Consenting Noteholders")
holding, on a combined basis, approximately 70% of the Existing
Notes and approximately 13% of the outstanding common shares.
With the support of the Committee any interest coming due and
payable under the Existing Notes until the completion of the
Recapitalization shall not be paid in cash and any unpaid interest
will form part of the principal amount of the Existing Notes that
is exchanged for common shares of the Company under the terms of
the Recapitalization.
In addition, the directors and officers of
Connacher holding, on a combined basis, approximately 0.76% of the
common shares have agreed to vote all of their common shares in
favour of the approval and adoption of the Recapitalization.
BMO Capital Markets, Connacher's financial
advisor, has provided an opinion to Connacher's Board of Directors
that the terms of the Recapitalization are fair, from a financial
point of view, to the Company. Based on a range of factors,
including the fairness opinion and advice of outside legal counsel,
Connacher's Board of Directors is unanimously recommending that all
holders of Existing Notes and common shares support the
Recapitalization, which will significantly reduce the Company's
debt and provide liquidity for ongoing operations.
Connacher expects to hold separate meetings of
holders of Existing Notes and common shares in late March 2015 in Calgary,
Alberta to obtain the required approvals for the steps
necessary to implement the Recapitalization transaction, including
approval by the holders of Existing Notes and common shares of a
Plan of Arrangement. Details of the Recapitalization will be
provided in an information circular expected to be distributed to
holders of Existing Notes and common shares before the end of
February. In addition to approval by holders of Existing Notes and
common shares, implementation of the Plan of Arrangement is subject
to final approval of the Court and receipt of all necessary
regulatory and stock exchange approvals.
The Company anticipates the Recapitalization to
be completed by early April 2015.
Operational Update
Connacher's Great Divide production for Q4 2014
averaged 15,250 bbl/d. December 2014
production was 15,500 bbl/d. All production numbers are based on
field estimates. Production has increased in each quarter of 2014
and Q4 2014 was 34 per cent higher than the prior year's fourth
quarter (Q4 2013 - 11,375 bbl/d).
Great Divide also achieved record production for
the year ended 2014. The Company's 2014 bitumen production averaged
14,140 bbl/d, 20 per cent higher than the prior year (2013 – 11,783
bbl/d). The Company has been able to achieve record production by
capitalizing on its 2013 and 2014 drilling programs which added 5
well pairs and 13 infill wells. Nine of the 13 infill wells are
currently on production. Asset reliability is also a large
contributor to these results. The Company has achieved industry
leading operating uptime of 97 per cent for the year ended
2014.
Capital spending in Q4 2014 was focused on the
mini-steam expansion project at Pod One and the SAGD+®
process commercial project at Algar. The Company has decided to
delay completion and tie-in of these projects and reduced growth
capital spending by 70%. As a result, 2015 growth capital
expenditures are currently budgeted at approximately C$15 million, down from C$49 million as originally budgeted.
The Company's cash balance as at December 31, 2014 was $94.2 million.
The Company has entered into an amendment and
waiver agreement with the lenders under its existing revolving
credit facility. Among other things, the maximum commitment amount
has been reduced to C$20.1 million
and will be reduced as existing letters of credit are replaced. No
new advances will be permitted under the facility and a waiver of
default has been granted to facilitate the Recapitalization.
This press release shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall
there by any sale of the securities in the United States or in any other jurisdiction
in which such offer, solicitation or sale would be unlawful. The
securities have not been registered under the United States
Securities Act of 1933, as amended, and may not be offered or sold
in the United States absent
registration or an applicable exemption from the registration
requirements thereunder.
Additional Information and Conference
Call
Connacher will host an investor conference call
on February 2, 2015 at 8:00 a.m. MST. Participants can call in to (888)
231-8191. Please use the Conference ID# 78991722.
Participants are encouraged to call in five minutes prior to
commencement. An audio webcast of the conference call will also be
available through the Company's website, or through the following
link:
http://event.on24.com/r.htm?e=935243&s=1&k=ABBD0EE8765D0A89109721FA6D255D67
Further information regarding the
Recapitalization will be available on SEDAR (www.sedar.com) and the
Company's website (www.connacheroil.com).
About Connacher
Connacher is a
Calgary-based in-situ oil sands
developer, producer and marketer of bitumen. The Company holds a
100 per cent interest in approximately 450 million barrels of
proved and probable bitumen reserves and operates two steam
assisted gravity drainage facilities located on the Company's Great
Divide oil sands leases near Fort
McMurray, Alberta.
Forward-Looking Information
Certain information regarding the Company
contained herein constitutes forward-looking information and
forward-looking statements (collectively, "forward-looking
statements") under the meaning of applicable securities laws.
Forward-looking statements include estimates, plans, expectations,
opinions, forecasts, projections, guidance, or other statements
that are not statements of fact, including statements regarding
[(i) the anticipated benefits of the Recapitalization, including
the reduction in debt and interest expense, (ii) the financial
position of the Company after giving effect to the
Recapitalization, (iii) anticipated timing for completion of the
Recapitalization, and (v) other risks and uncertainties described
from time to time in the reports and filings made by Connacher with
securities regulatory authorities. Although Connacher believes that
the assumptions underlying, and expectations reflected in, such
forward-looking statements are reasonable, it can give no assurance
that such assumptions and expectations will prove to have been
correct. There are many factors that could cause forward-looking
statements not to be correct, including, but not limited to, risks
and uncertainties inherent in the Company's business and risks and
uncertainties associated with securing the necessary approvals to
implement the Recapitalization. These risks include, but are not
limited to: crude oil, dilbit and diluent price volatility,
exchange rate fluctuations, availability of services and supplies,
operating hazards, access difficulties and mechanical failures,
weather related issues, uncertainties in the estimates of reserves
and in projection of future rates of production and timing of
development expenditures, general economic conditions, and the
availability of qualified personnel or management, and other risks
and uncertainties described from time to time in the reports and
filings made with securities regulatory authorities by
Connacher.
The forward-looking statements contained
herein are made as of the date of this news release solely for the
purpose of generally disclosing Connacher's Recapitalization
transaction, and prospective activities. Connacher may, as
considered necessary in the circumstances, update or revise the
forward-looking statements, whether as a result of new information,
future events, or otherwise, but Connacher does not undertake to
update this information at any particular time, except as required
by law. Connacher cautions readers that the forward-looking
statements may not be appropriate for purposes other than their
intended purposes and that undue reliance should not be placed on
any forward-looking statement. The Company's forward-looking
statements are expressly qualified in their entirety by this
cautionary statement.
Key Terms of the Recapitalization
Treatment of Existing Notes
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The Existing Notes
listed below will be affected by the Recapitalization:
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C$350 million
aggregate principal amount of 8.75% Notes due August 1,
2018
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US$550 million
aggregate principal amount of 8.50% Notes due August 1,
2019
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Holders of Existing
Notes ("Noteholders") will receive 98% of the recapitalized equity
of Connacher as follows:
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(i)
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Noteholders will
surrender their Existing Notes in exchange for their pro rata
share, based on the face amount of Existing Notes held plus all
obligations owed to Noteholders, of 98% of the recapitalized equity
of Connacher;
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(ii)
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Existing Note Claims
shall consist of all outstanding obligations owed to noteholders,
including the February 1, 2015 interest payment;
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(iii)
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In addition, all
existing Noteholders meeting the eligibility requirements outlined
below will have an opportunity to participate (the "Convertible
Note Participation Process") in amounts up to their pro rata share,
based on the face amount of Existing Notes held, in the issuance of
New Convertible Notes in an aggregate principal amount of up to
US$35 million.
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In effect, depending
upon the exchange rate at the funding of the transaction, it is
estimated that for every C$1,000,000 of face value of Existing
Notes held by an existing Noteholder, such Noteholder may
participate in up to US$33,351 (utilizing an exchange rate of
$1.2717 CAD/USD as of January 30, 2015) of the New Convertible
Notes.
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The deadline for
making a commitment to participate in the New Convertible Notes
will be set out in the information circular which is expected to be
available before the end of February 2015.
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To qualify to
participate in the New Convertible Notes, Noteholders must meet the
following criteria:
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a)
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be a holder of
Existing Notes on the record date for the Recapitalization;
and
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b)
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if such person is in
the United States, be an institution that is an "accredited
investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the United States Securities Act of 1933, as
amended.
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Specific instructions
on how to participate in the New Convertible Notes will be provided
in an information circular which is expected to be available before
the end of February 2015.
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Support Agreements
An ad hoc committee of Noteholders (the
"Committee") has executed support agreements with Connacher whereby
they have agreed to vote in favour of and support the
Recapitalization. The Committee holds approximately 70% of the
outstanding principal amount of the Company's Existing Notes.
Connacher will continue to solicit and obtain additional Noteholder
support for the Recapitalization. In addition, certain members of
the Committee ("Backstoppers") have entered into commitment
agreements with Connacher to the effect that any amount of the New
Convertible Notes that is not provided by Noteholders shall be
provided by the Backstoppers. Additional details with respect to
the backstop arrangements are described below.
Treatment of Existing First Lien Term Loan and
Revolving Credit Facility Obligations
- Members of the Committee have entered into commitment
agreements with Connacher to provide a C$30
million New Term Loan in replacement of the Revolving Credit
Facility at the option of Connacher.
- First Lien Term Loan obligations will be unaffected by the
Recapitalization. The Recapitalization will be implemented in
accordance with the existing "Permitted Second Lien Notes
Restructuring" provision of the First Lien Term Loan.
Treatment of Existing Shares
- Existing holders of common shares of Connacher ("Shareholders")
will retain their existing common shares (adjusted for the Share
Consolidation described below) and such shares will represent
approximately 2% of the outstanding common shares of Connacher
after giving effect to the Recapitalization and prior to the
conversion of any New Convertible Notes.
Share Consolidation
In conjunction with the Recapitalization, the
Company's issued and outstanding common shares will be subject to a
share consolidation, the terms of which will be determined prior to
the distribution of the information circular.
Terms of the New Term Loan
The following is a summary of selected terms of
the New Term Loan:
Issuer:
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Connacher Oil and Gas
Limited ("Connacher" or the "Company")
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Principal
Amount:
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C$30
million
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Maturity:
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August 31,
2018
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Interest:
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LIBOR plus 9.75% cash
payable quarterly in arrears
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Backstop
Commitment:
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Certain members of
the Ad Hoc Committee ("Backstoppers")
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Backstop
Consideration:
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5% payable on closing
in common shares or cash consideration payable, at the election of
each Backstopper
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Guarantors:
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Substantially the
same as the Revolving Credit Facility
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Ranking :
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Secured on a senior
basis to the existing First Lien Term Loan and the New Convertible
Notes
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Use Of
Proceeds:
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Maintain letters of
credit and provide incremental liquidity to the Company, subject to
the covenant package to be agreed upon between the Company and the
Backstoppers
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Terms of the New Convertible Notes
The following is a summary of selected terms of
the New Convertible Notes:
Issuer:
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Connacher Oil and Gas
Limited ("Connacher" or the "Company")
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Principal
Amount:
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US$35
million
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Maturity:
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August 31,
2018
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Interest:
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12% cash payable
quarterly in arrears, or, at Connacher's option with respect to any
interest payment, 14% PIK (interest will not be paid in cash, but
will continue to accrue and be dealt with pursuant to the
Plan)
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Backstop
Commitment:
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Certain members of
the Ad Hoc Committee ("Backstoppers")
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Backstop
Consideration:
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5% cash
consideration, payable on closing to the Backstoppers and any
consenting noteholders who executed the support agreement as of
January 30th to subscribe to their pro rata portion of
the New Convertible Notes ("Committed Subscribing Initial
Consenting Noteholders")
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Allocation:
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Available to all
existing eligible holders of the Existing Notes on a pro rata basis
(based on their Notes Claims as of the Record Date divided by the
Notes Claims of all Noteholders as of the record date)
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Guarantors /
Security:
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Substantially same as
existing indenture for the Existing Notes
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Ranking:
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Secured subordinate
to the New Term Loan and First Lien Term Loan
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Conversion:
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Convertible at the
option of (i) any individual holder of the New Notes and (ii) in
full at the option of holders of 66-2/3% of the New Notes
outstanding, with the consent of each Backstopper and any Committed
Subscribing Initial Consenting Noteholders (provided that the
consent of a Backstopper or a Committed Subscribing Initial
Consenting Noteholder shall only be required if that party still
retains 75% of the original principal amount of the New Notes
issued to that party on the effective date of the
Recapitalization)
Prior to February 17,
2015, the Company and the Backstoppers and any Committed
Subscribing Initial Consenting Noteholders may elect to structure
the form of consideration for the New Notes in a tax efficient
manner, including without limitation, by exchanging the New Notes
for (i) new second lien notes and warrants or (ii) new second lien
notes and common shares to be issued on the effective date of the
Recapitalization
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Use Of
Proceeds:
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Incremental liquidity
needs of the Company, subject to the covenant package to be agreed
upon between the Company and the Backstoppers
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Mandatory and
Voluntary Prepayments:
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Substantially the
same as the existing indenture for the Existing Notes
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Backstop Arrangements
The Backstoppers have entered into an agreement
(the "Backstop") with Connacher whereby they have, subject to
certain conditions, committed to fund any portion of the New
Convertible Notes that is not funded by the Convertible Notes
Participation Process.
The Backstop may be terminated upon (among other
event) the termination of the Support Agreement, the occurrence of
a material adverse change (as defined in the agreement) or
April 30, 2015.
SOURCE Connacher Oil and Gas Limited