Comstock amends exchange for all existing notes, pushes early deadline

By Wendy Van Sickle

Columbus, Ohio, Aug. 15 – Comstock Resources, Inc. extended the early tender date for its exchange offer in which it is offering senior secured toggle notes due 2020 for all of its currently outstanding notes.

The early tender date is now 11:59 ET on Aug. 26, pushed back from 5 p.m. ET on Aug. 12.

The new early tender date will also continue to be the expiration of the exchange offer, meaning all noteholders who participate in the offer will receive the early exchange consideration.

The company also made some additional changes to its offer, including to increase the in-kind interest rate of the senior secured toggle notes due 2020 offered in the exchange and to increase the number of common shares provided for by each warrant offered.

As previously reported, the company announced the exchange offer and related consent solicitation on Aug. 1.

The company is making the exchange offer in order to enhance its liquidity and “promote [its] long-term financial viability,” according to an S-4 filing with the Securities and Exchange Commission.

It warned in announcing the exchange offer that if it is not successful or the response is too low, then it may have to file for a restructuring under the U.S. Bankruptcy Code.

In the exchange, Comstock Resources is offering:

• $1,000 of 10% senior secured toggle notes due March 15, 2020 and warrants for 2.75 common shares, increased from 1.5 common shares under the initial offer, for each $1,000 principal amount of its $700 million of 10% senior secured notes due 2020. The warrants are exercisable at $0.01 per share;

• $1,000 of 7¾% convertible secured PIK notes due April 1, 2019 for each $1,000 principal amount of its $288,516,000 of 7¾% senior notes due 2019; and

• $1,000 of 9½% convertible secured PIK notes due June 15, 2020 for each $1,000 principal amount of its $174,607,000 of 9½% senior notes due 2020.

Holders will also receive accrued interest through the closing date of the exchange in cash.

Originally, an early tender premium of $50 principal amount of the respective new notes per $1,000 principal amount was set to be paid only to those who submitted their securities by 5 p.m. ET on Aug. 12.

The company increased the in-kind interest rate of the senior secured toggle notes due 2020 to 12¼% from 11%; they will continue to pay interest at the rate of 10% in cash. The total amount of PIK interest is limited to $75 million.

All figures relating to the company’s common stock reflect a one-for-five reverse split carried out on July 29.

Both series of new convertible notes will be convertible into common stock at the rate of 81.2 shares per $1,000 principal amount, equivalent to a price of $12.32 per share.

The conversion feature is subject to stockholder approval. If stockholder approval is not obtained by Dec. 31, 2016, the notes will not be convertible, an event that will cause a default under the notes.

Both series of new convertible notes will have a mandatory conversion feature that will be triggered if Comstock’s shares trade above $10.47, up from $9.24 under the original offer, for 10 consecutive trading days.

Also under the amended offer, Comstock added a 61-day notice requirement for any optional conversion that would cause a holder to become an affiliate of the company.

Additionally, the company is also enhancing the collateral that will secure the new notes from what is currently required for the existing senior secured notes. Currently, the company is required to maintain mortgages for the existing secured notes of at least 80% of the company's present value of total proved reserves with no requirement with respect to probable drilling locations. The amendment provides that Comstock will be required to maintain mortgages for the new secured notes of at least 90% of the company's present value of total proved reserves and probable operated Haynesville and Bossier undrilled locations.

Comstock is also soliciting consents to amend the indentures for the old notes to eliminate or amend certain restrictive covenants, to release the collateral securing the existing senior secured notes and to modify other provisions.

Holders may not tender without delivering consents.

Completion of the exchange is subject to conditions including that holders tender at least 95% of the existing senior secured notes and at least 95% in total of the existing 7¾% senior notes and 9½% senior notes. Comstock also needs consents from holders of at least 50% of each series of existing notes and at least 66 2/3% of the senior secured notes to release the collateral.

Settlement is scheduled for Aug. 31.

Comstock Resources said a successful exchange will free up its cash flow from operations to allow it to restart its Haynesville shale drilling program. Restarting the drilling will in turn allow the company to increase its natural gas production and proved oil and gas reserves and consequently benefit from improving natural gas prices.

The company noted that the “substantial decline in oil and natural gas prices” in 2015 and continuing into 2016 has reduced its liquidity. As a result, its operating cash flow is not sufficient to cover its fixed debt service costs. Capital expenditures have had to be funded with asset sale proceeds or cash on hand.

BofA Merrill Lynch (888 292-0070, 980 388-4813 or 646 855-2464) is dealer manager. D.F. King & Co., Inc. (212 269-5550, 877 732-3619 or crk@dfking.com) is the information and exchange agent.

Comstock Resources is a Frisco, Texas, oil and natural gas exploration and production company.

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