Legacy Reserves LP Announces Expanded Second Lien Term Loan and Increased Senior Notes Ownership
January 05 2018 - 9:15AM
Legacy Reserves LP ("Legacy") (NASDAQ:LGCY) today announced that it
entered into additional transactions to reduce its total
indebtedness and increase its financial flexibility.
On December 31, 2017, Legacy entered into a definitive agreement
with certain funds managed by Fir Tree Partners (“Fir Tree”) to
acquire its entire holdings in Legacy’s $550 million 6.625% Senior
Notes due 2021 (“6.625% Notes”). Legacy purchased $187
million of the 6.625% Notes for a price of approximately $131
million. Pro forma for this repurchase, Legacy owns $304
million of the 6.625% Notes representing 55% of the total.
Legacy also owns $67 million of the 8% Senior Notes due 2020 (“8%
Notes”), representing 22% of the total. Legacy has not
retired any of the 8% Notes or 6.625% Notes it has repurchased to
date and, subject to certain restrictions, retains its voting
rights under the corresponding indentures.
As part of the foregoing transactions, Legacy and certain funds
managed by GSO Capital Partners LP (collectively, “GSO”), amended
the 2nd Lien Term Loan including an increase in the amount of
aggregate commitments from $300 million to $400 million, extending
the availability of borrowings under the 2nd Lien Term Loan to
October 25, 2019, relaxing the asset coverage test from 1.0x to
0.85x during 2018 and paying associated fees. Legacy funded
the repurchase of the 6.625% Notes with its newly-amended 2nd Lien
Term Loan. Legacy will have approximately $339 million drawn
under the 2nd Lien Term Loan after the repurchase, leaving
approximately $61 million of remaining availability.
Separately, Legacy paid cash and issued new units to Fir Tree under
a twelve-month Standstill and Voting Agreement, limiting their
ability to acquire additional Legacy securities and agreeing to
vote their units in accordance with the recommendation of the Board
of Legacy’s general partner and generally support Legacy’s
actions.
Paul T. Horne, Chairman of the Board, President and Chief
Executive Officer of Legacy's general partner commented, "This
opportunity to reduce total debt outstanding and gain meaningful
voting control of our senior notes marks another great stride in
improving Legacy’s financial position in an otherwise difficult
market. I want to thank the GSO team for their continued
support of Legacy. We look forward to making further progress
in 2018."
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.
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 for the use of capital that will generally
be taxable to the holders of such Preferred Units as ordinary
income even in the absence of contemporaneous distributions.
In addition, Legacy's unitholders, just like unitholders of
other master limited partnerships, are allocated taxable income
irrespective of cash distributions paid. Because Legacy's
unitholders are treated as partners that are allocated a share of
Legacy's taxable income irrespective of the amount of cash, if any,
distributed by Legacy, unitholders will be required to pay federal
income taxes and, in some cases, state and local income taxes on
their share of Legacy's taxable income, including its taxable
income associated with cancellation of debt ("COD income") or a
disposition of property by Legacy, even if they receive no cash
distributions from Legacy. 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 the
allocation of income and gain to its unitholders without a
corresponding cash distribution. For example, during the year ended
December 31, 2016, Legacy closed 26 divestitures generating net
proceeds of $97.4 million, and Legacy may sell additional assets
and use the proceeds to repay existing debt or fund capital
expenditures, in which case Legacy's unitholders may be allocated
taxable income and gain resulting from the sale, all or a portion
of which may be subject to recapture rules and taxed as ordinary
income rather than capital gain, without receiving a cash
distribution. Further, Legacy may pursue other opportunities to
reduce its existing debt, such as debt exchanges, debt repurchases,
or modifications that would result in COD income being allocated to
its unitholders as ordinary taxable income. The ultimate effect of
any income allocations will depend on the unitholder's individual
tax position with respect to that holder's units, including the
availability of any current or suspended passive losses that may
offset some portion of the COD income allocable to a unitholder.
Unitholders are encouraged to consult their tax advisors with
respect to the consequences of potential 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 unitholders that in the aggregate exceeded the
cumulative net taxable income they were allocated for a unit
decreased the tax basis in that unit, and 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
received is less than 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.
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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