Energy Corp. of America to purchase up to $34 million of 9 ½% notes

New York, June 30 - Energy Corp. of America (Caa3/C) said it had begun an asset sale offer to purchase up to $34 million principal amount of its 9½% senior subordinated notes due 2007, as required by a previously announced legal settlement.

The offer will expire at 5 p.m. ET on July 28, subject to possible extension.

The company will purchase the notes at their par value, plus accrued and unpaid interest up to, but excluding, the date of payment.

The Bank of New York will act as depositary for the offer.

As previously announced, Energy Corp. a Denver-based independent oil and gas exploration and production company said on Feb. 25 that it had agreed buy back $38 million of its $200 million of 9½% notes then outstanding under a settlement agreement with some holders arising out of litigation.

According to an 8-K filing with the Securities and Exchange Commission, terms of the settlement called for the company to make three "asset sale offers" to buy back the notes - the first, for $4 million, on Feb 26. Of the remaining $34 million to be bought back, buyback of at least $17 million would have to be completed within 180 days of the settlement agreement (i.e. no later than about Aug. 25) and the final buyback of up to $17 million would have to be completed within 360 days of execution of the settlement agreement (i.e. no later than about Feb. 20, 2005).

The company was forced into the settlement after having received default notices from first the noteholders and then its bank lenders, and after losing a lawsuit to the bondholders.

The legal tangle had started when Energy Corp. sold an indirect subsidiary, Mountaineer Gas Co., in August 2000.

On Dec. 27, 2001, an informal committee representing holders of more than 50% of the notes sent a notice to the company saying it was in default because it had not offered to buy back notes using part of the proceeds from the sale of Mountaineer; holders claimed it was obligated to due so under the terms of the notes' indenture. The holders said the excess proceeds from the sale were $43 million.

Energy Corp. originally obtained a favorable court ruling supporting its position, but the noteholders appealed and ultimately prevailed. On Dec. 15, 2003, the U.S. Court of Appeals for the Fourth Circuit reversed the order of the district court, according to the SEC filing. The company's request for a rehearing was denied.

Noteholders involved in the settlement were Mackay Shields LLC, Debt Strategies Fund Inc. and various Merrill Lynch funds.

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