CALGARY – Junior oilsands producer Connacher Oil and Gas Ltd.’s plan to swap $1 billion worth of debt for equity received both shareholder and debt-holder approvals on Monday, although the company may not be completely out of the woods.
The deal, which is subject to approvals at an Alberta court hearing on Tuesday, significantly reduces the junior oilsands producer’s debt – which stands at roughly $1.2 billion, according to year-end results posted last week – while also diluting the company’s shares.
“It’s a big step for the company. We’re happy with what we’ve been able to accomplish with this,” Connacher CEO Chris Bloomer said in an interview.
Shareholders voted 96% in favour of the second-lien-debt-for-equity swap. Among debt holders, 97% of the second-lien lenders, representing $922 million of those bonds, also voted in favour of the transaction.
“It creates more liquidity and runway for us and we’re going to wait and see prices turnaround and get back to business,” Mr. Bloomer said.
A few questions were asked during the shareholders’ meeting, but there was none of the recriminations of the 2013 annual general meeting, Mr. Bloomer’s first as CEO, when several rose to express anger at the company’s poor financial and operational record.
However, the debt-for-equity swap is also the subject of an objection by a separate group of more senior, first-lien Connacher note holders.
Those note holders, represented by Credit Suisse Group AG, filed an objection in Calgary last week to the plan. They also filed a lawsuit on March 16 in New York demanding Connacher immediately repay a US$128 million loan that they say is in default — a claim Connacher has disputed.
Credit Suisse “was within its rights under New York law when it accelerated the debt” and sought repayment form the Calgary-based company, Allan L. Gropper, a retired Manhattan bankruptcy judge, said in an expert affidavit filed by the creditors.
“We don’t think they have a valid argument based on their agreement and what they’re able to do within that agreement,” Mr. Bloomer said. He added that Connacher made an interest payment due at the end of March, “so we’re not offside.”
“Sometimes in these cases, the parties want to use this to renegotiate some of the terms of their deal,” Mr. Bloomer added.
Standard and Poor’s Canadian corporate ratings director Michelle Dathorne said in a telephone interview that Connacher’s overall debt rating had fallen to “D” on Feb. 2, after the company defaulted an interest payment to its second-lien note holders.
Connacher is one of a handful of junior oilsands companies that have struggled with debt payments since global oil prices collapsed to 50% of their June 2014 value. Southern Pacific Resources Corp., another oilsands junior, missed a $5 million debt payment on Dec. 31, 2014.
For its part, Connacher posted a $211 million net loss last year on $437 million in revenues, according to its year-end financial statements released last week.
The company’s stock price has steadily fallen from a record high of $5.50 per share in 2006 to 34¢ per share before the oil price rout began in June 2014 and to 3¢ per share when markets closed Monday.
Financial Post with files from Bloomberg and Calgary Herald
gmorgan@nationalpost.com
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