Exco Resources Nears Deal to Stave Off Bankruptcy -- Update
March 15 2017 - 3:27PM
Dow Jones News
By Matt Jarzemsky
Exco Resources Inc. is nearing a deal to stave off a potential
bankruptcy that could ultimately put some of its creditors in
control of the company.
The Dallas-based company plans to sell $300 million in bonds to
a group of investors including Fairfax Financial Holdings Ltd.,
Bluescape Resources Co. and Oaktree Capital Group LLC and use the
proceeds to pay down its credit line and fund operations, according
to people familiar with the matter.
Providers of the new debt would also receive warrants giving
them the option to acquire up to about 55% of Exco at about 90
cents a share, the people said. Exco's stock closed Tuesday at 59
cents and recently traded at around 58 cents.
Exco, like other energy producers, has struggled to regain its
footing following a steep drop in oil and gas prices in late 2014.
More than 100 North American oil and gas producers have filed for
bankruptcy protection since the beginning of 2015, according to
Texas law firm Haynes and Boone LLP, and a number of others have
cut their debt via out-of-court deals with creditors.
Prices have rebounded, but not enough to restore many energy
producers to profitability. Natural gas hit a two-year high on Dec.
28 but has fallen 24% since then.
Exco has more than $1 billion worth of bonds and loans and has
reported losses in six of the last seven quarters, according to
regulatory filings. The company and its largest shareholder, WL
Ross & Co., have sought to help it to ride out the downturn by
refinancing debt, overhauling Exco's board and recruiting veteran
energy executive John Wilder to serve as chairman. But its options
have narrowed as the company's cash and borrowing capacity have
declined.
The proposed deal would reduce Exco's debt burden while offering
value to creditors at the expense of current shareholders.
The warrants would offer a greater stake in Exco's recovery to
creditors such as Fairfax, led by Canadian insurance magnate Prem
Watsa, and Bluescape, the investment firm founded by Mr. Wilder,
who led Texas utility TXU Corp. through its $32 billion buyout in
2007. Fairfax and Bluescape already own Exco stock and debt.
Current shareholders including WL Ross would be diluted if the
debt investors exercise their warrants. WL Ross's founder,
distressed investor Wilbur Ross, recently resigned from the firm
and from Exco's board to join President Donald Trump's
administration as Commerce secretary.
The deal would free Exco from cash interest payments for two
years, according to people familiar with the matter. The new bonds
may be paid in Exco stock, rather than cash, during that time, the
people said. The same would go for a new $700 million loan the
company plans to swap for its existing loan of the same size, they
said.
Exco also is exploring a sale of energy assets in South Texas,
which could fetch about $300 million, the people said.
Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com
(END) Dow Jones Newswires
March 15, 2017 15:12 ET (19:12 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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