Item 1.01
Entry into a Material Definitive Agreement.
Restructuring Support Agreement
Halcón Resources Corporation (
Halcón
) has been involved in discussions with certain of its stakeholders in respect of a possible restructuring of the indebtedness and capitalization of Halcón and its subsidiaries (collectively, the
Company
). On August 2, 2019 the Company entered into a restructuring support agreement (together with the exhibits annexed thereto, the
RSA
) with holders of approximately 67.3% of the aggregate outstanding principal amount of the 6.75% Senior Notes due 2025 (the
Senior Notes
) issued by Halcón under that certain indenture, dated as of February 16, 2017 (as amended, modified, or otherwise supplemented from time to time, the
Senior Notes Indenture
), pursuant to which the parties have agreed to support a restructuring on the terms of a prepackaged plan of reorganization (the
Plan
) as described therein and attached as an exhibit thereto. The RSA contemplates that the Company will file for voluntary relief under title 11 of chapter 11 of the United States Bankruptcy Code (the
Chapter 11 Case
) in the United States Bankruptcy Court for the Southern District of Texas (the
Bankruptcy Court
) on or before August 7, 2019 if certain approval levels are attained from the Senior Noteholders in favor of the restructuring in accordance with the terms of the RSA. The description below of the RSA is qualified by reference to the full text of such agreement, a copy of which is filed herewith as
Exhibit 10.1
and is incorporated herein by reference.
Pursuant to the terms of the RSA, stakeholders and other interest holders will receive the following treatment:
·
Lenders (the
RBL Lenders
) under the Companys prepetition revolving credit facility holding allowed claims in the aggregate principal amount up to $225,000,000 (together with interest and certain obligations and fees thereunder, the
RBL Claims
) will receive, on account of such RBL claims, payment in full, in cash, including by a refinancing, and the RBL Lenders existing commitments will be terminated.
·
Holders of the Senior Notes (the
Senior Noteholders
) will receive, in respect of their $625 million in allowed claims, their pro rata share of (i) 91% of the new common shares of reorganized Halcón (
New Common Shares
) to be issued under the Plan on the effective date of the Plan (the
Effective Date
) and (ii) the right to purchase New Common Shares for an aggregate purchase price of $150,150,000 (the
Senior Noteholder Rights Offering
).
·
Holders of the existing shares of common stock of Halcón (the
Existing Equity Interests
), including any restricted stock of Halcón that vests prior to the Effective Date, will receive their pro rata share of (i) 9% of the total New Common Shares to be issued pursuant to the Plan on the Effective Date, (ii) the Warrants (as defined below), and (iii) the right to purchase New Common Shares for an aggregate purchase price of $14,850,000 (the
Existing Equity Rights Offering
) (collectively, the
Existing Equity Total Consideration
); provided, however, that registered holders of Existing Equity Interests with fewer than or equal to 2,000 shares of Existing Equity Interests will instead receive cash in an amount equal to the inherent value of such holders pro rata share of 9% of the Existing Equity Total Consideration (the
Existing Equity Cash Out
).
·
The warrants (the
Warrants
) to be issued to holders of Existing Equity Interests will be composed of three series, each of which will be exercisable, in cash, for a period of three (3) years following the Effective Date: (i) for 10% of the New Common Shares as of the Effective Date, at an exercise price equal to an implied 75% recovery to Senior Noteholders; (ii) for 10% of the New Common Shares as of the Effective Date, at an exercise price equal to an implied 95% recovery to Senior Noteholders; and (iii) for 10% of the New Common Shares as of the Effective Date, at an exercise price equal to an implied 125% recovery to Senior Noteholders (in each case, subject to the Existing Equity Cash Out). Such implied amounts are inclusive of non-default interest under the Senior Notes through the date of exercise, calculated as if accrued daily (subject to certain limitations).
·
All other equity interests of Halcón, including all issued and outstanding warrants, options or other securities convertible into equity securities or interests of Halcón will be cancelled, released, and extinguished and receive no distributions under the Plan.
·
A post-emergence management incentive Plan will be adopted, which will include restricted stock units, options, New Common Shares, or other rights exercisable, exchangeable, or convertible into New Common Shares representing 7.5% to 10% of the New Common Shares on a fully diluted basis (the
MIP Equity
).
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The New Common Shares to be issued on the Effective Date to the Senior Noteholders and to the holders of Existing Equity Interests on account of their claims will be subject to dilution by the (i) New Common Shares issuable upon exercise of the Warrants, (ii) MIP Equity, (iii) Senior Noteholder Rights Offering equity, (iv) Existing Equity Rights Offering equity and (v) Backstop Commitment Premium (as defined below).
The RSA contains certain covenants on the part of the Company and the Senior Noteholders party to the RSA, including that such Senior Noteholders vote in favor of the Plan. The RSA also provides for termination by the parties upon the occurrence of certain events.
Backstop Commitment Agreement
On August 2, 2019 Halcón entered into a backstop commitment agreement (the
BCA
) with certain of the Senior Noteholders (the
Backstop Parties
) pursuant to which the Backstop Parties agreed to backstop the Senior Noteholder Rights Offering. The BCA is subject to Bankruptcy Court approval.
Pursuant to the BCA, the Backstop Parties have committed to (i) exercise their respective rights to purchase their pro rata share of the New Common Shares available to be purchased in the Senior Noteholder Rights Offering and (ii) backstop the aggregate Senior Noteholder Rights Offering and purchase the New Common Shares available in the Senior Noteholder Rights Offering to the extent unsubscribed.
In consideration of each Backstop Partys backstop commitment, each Backstop Party shall be entitled to receive its pro rata share (the
Backstop Commitment Premium
) of either (i) on the Effective Date, in the form of New Common Shares, 6% of the aggregate amount of the Senior Noteholder Rights Offering issued at a price per share equal to the price per share offered to Senior Noteholders in the Senior Noteholder Rights Offering, or (ii) if the BCA is terminated due to a material breach of the BCA by Halcón, a cash payment equal to 6% of the aggregate amount of the Senior Noteholder Rights Offering.
The Backstop Parties obligation to backstop the Senior Noteholder Rights Offering, and the other transactions contemplated by the BCA, are conditioned upon the satisfaction (or waiver) of all conditions to the effectiveness of the Plan, and other conditions precedent set forth in the BCA, including Bankruptcy Court approval of the BCA. The BCA may be terminated upon the occurrence of certain events, including termination of the RSA and material, uncured breaches by the parties under the BCA.
The foregoing description of the BCA is qualified by reference to the full text of such agreement, a copy of which is filed herewith as
Exhibit 10.2
and is incorporated herein by reference.
Exit Financing
In connection with the RSA and the Chapter 11 Case, the Company has received an underwritten commitment from BMO Harris Bank, N.A. for the entire amount of a new $750 million senior secured revolving credit facility (the
Exit Facility
), effective upon the Companys emergence from the Chapter 11 Case, which will be arranged by BMO Capital Markets Corp. The Exit Facility will have an expected initial borrowing base of $275 million. A portion of the Exit Facility in the amount of $50 million will be available for the issuance of letters of credit. The proceeds of the Exit Facility will be used to refinance indebtedness that the Company incurs during the pendency of the Chapter 11 Case under a debtor-in-possession credit facility, for working capital and other general corporate purposes, to issue letters of credit, for transaction fees and expenses and for fees related to the Companys emergence from the Chapter 11 Case. The Exit Facility is subject to customary closing conditions and approval by the Bankruptcy Court, which has not been obtained at this time.
The terms of the Exit Facility are set forth in a senior secured revolving credit facility commitment letter (the
Exit Commitment Letter
), and the foregoing description of the Exit Facility is qualified by reference to the full text of the Exit Commitment Letter, a copy of which is filed herewith as
Exhibit 10.3
and is incorporated herein by reference.
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