Samson Resources announced on Aug. 14 that it has entered into a restructuring support agreement with certain lenders holding 45.5% of the company’s second-lien debt, and with its equity owners, KKR, on a proposed balance sheet restructuring that “would significantly reduce the company’s indebtedness and result in an investment of at least $450 million of new capital.”
As a result, the company said it would not make the interest payment due today under its senior notes indenture, but instead would use the 30-day grace period triggered by its non-payment “to build broader support for the restructuring and continue efforts to document and ultimately implement the reorganization transaction as part of a Chapter 11 filing.”
Samson is just the latest casualty of the collapse of energy markets. “We – like many of our peers – have not been able to overcome industry headwinds that significantly reduced our cash flows, limited our ability to reinvest in our assets and prevented us from selling non-core assets as we had planned,” said Randy Limbacher, the company’s CEO.
The company said that, in the meantime, its operations would continue “uninterrupted.”
Under the terms of the RSA, second-lien lenders, including Silver Point, Cerberus and Anschutz, have agreed to invest at least $450 million of new capital to provide liquidity to the balance sheet post reorganization and permanently pay down existing first-lien debt, the company said.
According to a Form 8-K filed with the Securities and Exchange Commission, the investment would consist of at least $325 million to purchase new common equity in the company, and no more than $125 million of new second-lien debt to be issued by the reorganized company. The investment may be increased by $35 million to an aggregate of $485 million to further bolster liquidity, the company said, if management determines by Nov. 1 that pro forma liquidity upon emergence from Chapter 11 would be less than $350 million.
The second-lien lender group would backstop a rights offering to second-lien lenders contemplating $413.25 million in new equity and $36.75 million in new second-lien debt (with the debt component used first to satisfy any backstop commitment up to the $125 million maximum amount).
According to the RSA term sheet, the new second-lien debt would be structured as a term loan with a five-year term, at an annual interest rate of 8.5% for the first year, increased by 50 basis points every six months thereafter. There would be no prepayment penalty for the first year, with call protection then set at 102, 101, and par.
Backstop parties would receive a $10 million cash fee, to be paid out of the offering proceeds. In addition, $45 million of equity would be issued to backstop parties at a 20% discount to plan enterprise value, which the RSA sets at $1.275 billion.
The rights offering proceeds would then be used to pay down the company’s existing reserve-based revolver to $650 million.
Under a proposed reorganization, second lien lenders would then receive all remaining equity in the reorganized company not otherwise issued under the plan, i.e., via the rights offering, management and board incentive program (10%), or to unsecured noteholders (slated to receive 1% of the reorganized equity of the vote to accept the plan, 0.5% if they vote to reject it).
The proposal contains a $10 million break-up fee.
The RSA contemplates a Chapter 11 filing by Sept. 16. If holders of at least two-thirds of second lien debt (the amount needed for acceptance of the proposed reorganization plan in a Chapter 11 proceeding) do not sign on to the RSA by Oct. 14, however, the company would have the option to pursue a sale of assets under Section 363 of the Bankruptcy Code, with the backstop parties serving as stalking-horse bidders.
According to the term sheet, in a Section 363 sale scenario, the company’s enterprise value would be $1.175 billion, with a minimum overbid of $1.4 billion. The stalking-horse agreement would carry a break-up fee of $35.25 million, or 3% of the purchase price.
Blackstone Advisory Partners is the company’s investment banker, and Alvarez & Marsal is its restructuring advisor. Kirkland & Ellis is restructuring counsel. – Alan Zimmerman