Terrace offers to exchange 8% convertibles as part of restructuring

New York, March 31 – Terrace Energy Corp. announced an exchange offer for its 8% convertible unsecured notes due 2018.

Holders are being offered new convertible secured notes due April 2, 2021 at the rate of C$1,000 of new notes for each C$1,000 of existing notes, according to a news release.

Accrued interest will not be paid.

The new convertibles will not pay interest but will pay a “maturity bonus” of 5% of the principal amount.

If the new notes are redeemed within 180 days of the maturity date the bonus will be 2.5%.

Terrace will be able to pay the bonus in cash or stock.

The new notes will convert at a price of C$0.50 per share, lower than the C$2.00 conversion price of the existing notes.

Terrace said that it has entered into voting support agreements with holders of C$14.5 million, or 37%, of the existing notes.

The exchange will be carried out through a plan of arrangement under the Business Corporations Act (British Columbia) that requires the support of a majority of noteholders by number and 75% of noteholders by principal amount. Court approval is also required.

A special meeting of noteholders will be held at 1 p.m. ET on May 9 to seek approval from noteholders.

The exchange is part of a restructuring plan intended to preserve cash and protect the future value of the company’s business, Terrace Energy said.

“Current market conditions and the near term projected outlook for the oil and gas industry require that we take immediate steps to reduce expenditures and preserve assets so that all stakeholders have an opportunity to benefit from a future industry wide recovery,” said Dave Gibbs, the company’s president and chief executive officer, in a news release.

Terrace said its Terrace STS, LLC subsidiary is in discussions with its secured lender concerning its non-compliance with credit agreement covenants.

The loan is secured by the assets of Terrace STS and is non-recourse to Terrace Energy.

Terrace STS’ assets are limited to the initial 3,900 net acre STS Olmos Development project and the associated producing wells and infrastructure.

The discussions are focused on the conversion of the loan into equity in the subsidiary.

Other steps include a deferral of capital spending on drilling. Terrace said it has negotiated deferrals of drilling commitments on its STS Olmos and Maverick County projects until late 2017. The deferrals allow the company to maintain its leasehold interest of approximately 40,000 net mineral acres in the two projects.

Terrace said it will continue to pursue opportunities to acquire leases within its approximately 240,000 acre area of mutual interest surrounding the existing STS Olmos project.

Terrace has also reduced its general and administrative expenses for the current fiscal year by more than 70%, cutting $2.6 million of costs.

By forming a separate consulting and contract management services company that will compensate key technical staff and executive officer from client billings, Terrace said it has eliminated 85% of its salary obligations without incurring severance costs.

Outside services have been shrunk by 65%, saving US$750,000 a year and ancillary costs such as rent and communications by US$250,000.

Terrace Energy is a Vancouver, B.C.-based oil and gas company concentrating on unconventional oil extraction, particularly in south Texas.

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