Legacy Reserves LP ("Legacy") (NASDAQ:LGCY) today announced that it
has executed a second lien term loan credit agreement (the “Second
Lien”) with GSO Capital Partners LP (“GSO”) to provide loans in an
aggregate amount up to $300 million. Advances under the
Second Lien will be issued with an upfront fee of 2%, bear interest
of 12.0% per annum and mature, subject to certain conditions, on
August 31, 2021. Legacy intends to use the initial $60
million of gross loan proceeds to repay outstanding indebtedness
and pay associated transaction expenses.
In connection with the foregoing transaction,
Legacy entered into an amendment (the “Amendment”) to its revolving
credit facility agreement to permit the Second Lien and included a
reduction of the borrowing base from $630 million to $600 million.
In addition, the Second Lien and the Amendment added a secured debt
asset coverage covenant of 1.00 times starting with the fiscal
quarter ended June 30, 2017 and a Secured Debt / EBITDA covenant
starting with the fiscal quarter ended December 31, 2018, increased
the mortgage requirement to 95% of the value of oil and natural gas
properties, required 75% of projected oil and natural gas
production from proved developed producing reserves to be hedged
through 2018, and amended the interest coverage ratio to 2.00
times.
Also, D. Dwight Scott, Senior Managing Director
of Blackstone Group L.P. and Head of GSO’s Energy business, will be
added to the Board of Directors of Legacy Reserves GP, LLC, the
general partner of Legacy, pursuant to the terms of a Director
Nominating Agreement.
Paul T. Horne, the Chairman, President and CEO
of Legacy’s general partner said, “As previously communicated, our
management and Board have been working diligently in this prolonged
period of depressed commodity prices to position Legacy for
increased chances of success. After considerable evaluation
of numerous alternatives, we are pleased to announce this second
lien term loan agreement with GSO that reduces our outstanding bank
debt and provides a source of future capital for the business.
GSO’s investment expertise in the oil and gas industry makes
them an ideal capital provider for Legacy. We are eager to
pursue additional opportunities and have provided GSO the ability
to participate in up to 50% of our future debt or equity
financings. Additionally, we are pleased to welcome Dwight
Scott to our Board of Directors. Dwight’s extensive
experience and industry knowledge will be a valued asset in
Legacy’s boardroom. We look forward to continuing to work
with GSO as we navigate these tough and uncertain times in the
industry.”
Dwight Scott added, “We have watched the
progress made on many fronts by the Legacy team over the last year,
and are excited to be a part of the Company’s continued focus on
strengthening its balance sheet and in the ultimate growth of the
business as the industry recovery continues.”
Jefferies LLC acted as sole financial advisor
and Kirkland & Ellis LLP acted as legal advisor to Legacy in
this transaction. Latham & Watkins LLP acted as legal advisor
to GSO.
Conference Call to Report Third Quarter
2016 Results
Legacy will provide details of its third quarter
2016 operating and financial performance with its earnings report
which is scheduled to be released on Wednesday, November 2, 2016,
following the close of NASDAQ trading. A teleconference and webcast
will be held on Thursday, November 3, 2016, beginning at 9:00 a.m.
Central Time. Those wishing to participate in the conference call
should dial 877-266-0479. A replay of the call will be available
through Thursday, November 10, 2016, by dialing 855-859-2056 or
404-537-3406 and entering replay code 98590760. Those wishing to
listen to the live or archived webcast via the Internet should go
to the Investor Relations tab of our website at
www.LegacyLP.com.
Additional Information for Holders of
Legacy Units
Although Legacy has suspended distributions to
both the 8% Series A and Series B Fixed-to-Floating Rate Cumulative
Redeemable Perpetual Preferred Units (the "Preferred Units"), such
distributions continue to accrue. Pursuant to the terms of Legacy's
partnership agreement, Legacy is required to pay or set aside for
payment all accrued but unpaid distributions with respect to the
Preferred Units prior to or contemporaneously with making any
distribution with respect to Legacy's units. Accruals of
distributions on the Preferred Units are treated for tax purposes
as guaranteed payments and will generally be taxable to the holders
of such Preferred Units as ordinary income even in the absence of
contemporaneous distributions.
In addition, as partners in a partnership for
federal income tax purposes, Legacy unitholders, just like
unitholders of other master limited partnerships, are allocated
taxable income irrespective of the amount of cash, if any,
distributed to the unitholders. The tax allocation of taxable
income may require the payment of United States federal income
taxes and, in some cases, state and local income taxes by our
unitholders. As of January 21, 2016, Legacy has suspended all cash
distributions to unitholders and holders of the Preferred Units.
Legacy may engage in transactions to de-lever the Partnership and
manage its liquidity that may result in income and gain to
unitholders without a corresponding cash distribution.
For example, unitholders may be allocated taxable income and gain
resulting from asset sales. Further, if Legacy engages in debt
exchanges, debt repurchases, or modifications of our existing debt,
these or similar transactions could result in “cancellation of
indebtedness income” (also referred to as “COD income”) being
allocated to unitholders as taxable income. Unitholders may be
allocated gain and income from asset sales and COD income and may
owe income tax as a result of such allocations notwithstanding the
fact that we have currently suspended cash distributions to
unitholders. The ultimate effect of any such allocations will
depend on the unitholder's individual tax position with respect to
its units. Unitholders are encouraged to consult their tax advisors
with respect to the consequences of potential partnership or
unitholder transactions that may result in income and gain to
unitholders.
Additionally, if Legacy’s unitholders, just like
unitholders of other master limited partnerships, sell any of their
units, they will recognize gain or loss equal to the difference
between the amount realized and their tax basis in those units.
Prior distributions to Legacy’s unitholders that were in the
aggregate in excess of the cumulative net taxable income they were
allocated for a unit, and therefore decreased their adjusted tax
basis in that unit, will, in effect, become taxable income to
Legacy’s unitholders if the unit is sold at a price greater than
their tax basis in that unit, even if the price Legacy’s
unitholders receive is less than their original cost. A substantial
portion of the amount realized, whether or not representing gain,
may be ordinary income to Legacy’s unitholders due to the potential
recapture items, including depreciation, depletion and intangible
drilling costs.
About Legacy Reserves LP
Legacy Reserves LP is a master limited
partnership headquartered in Midland, Texas, focused on the
acquisition and development of oil and natural gas properties
primarily located in the Permian Basin, East Texas, Rocky Mountain
and Mid-Continent regions of the United States. Additional
information is available at www.LegacyLP.com.
Cautionary Statement Relevant to
Forward-Looking Information
This press release contains forward-looking
statements relating to our operations that are based on
management's current expectations, estimates and projections about
its operations. Words such as "anticipates," "expects," "intends,"
"plans," "targets," "projects," "believes," "seeks," "schedules,"
"estimated," and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties
and other factors, some of which are beyond our control and are
difficult to predict. Among the important factors that could cause
actual results to differ materially from those in the
forward-looking statements are: realized oil and natural gas
prices; production volumes, lease operating expenses, general and
administrative costs and finding and development costs; future
operating results and the factors set forth under the heading "Risk
Factors" in our annual and quarterly reports filed with the SEC.
Therefore, actual outcomes and results may differ materially from
what is expressed or forecasted in such forward-looking statements.
The reader should not place undue reliance on these forward-looking
statements, which speak only as of the date of this press release.
Unless legally required, Legacy undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
CONTACT:
Legacy Reserves LP
Dan Westcott
Executive Vice President and Chief Financial Officer
432-689-5200
Legacy Reserves Inc. (MM) (NASDAQ:LGCY)
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