Trans Energy’s American Shale subsidiary gets forbearance agreement

By Angela McDaniels

Tacoma, Wash., Aug. 23 – Trans Energy, Inc. subsidiary American Shale Development, Inc. entered into a forbearance agreement with its lenders on Aug. 17, according to an 8-K filing with the Securities and Exchange Commission,

Under the terms of the agreement, the lenders agreed to forbear from taking any enforcement actions with respect to defaults under the credit agreement, provided that the borrower achieves certain milestones with respect to a process to sell some of its assets.

In addition, the forbearance provides for a sharing of the proceeds that might result from any such sale process according to the following formula:

• First, 100% to the lenders, until the lenders have received $80 million plus interest from and after the effective date at a rate of 12% per year;

• Second, 78.75% to the lenders and 21.25% to the borrower, until the lenders have the sum of $57.17 million plus interest from and after the effective date at 15% per year and the amount of any fees and expenses payable by the borrower that are incurred after the effective date plus interest from and after the effective date at 15% per year; and

• Thereafter, 15% to the lenders and 85% to the borrower.

The lenders have also agreed to re-convey the net profits interest to the borrower with respect to any assets that are sold in accordance with the terms of the forbearance.

The forbearance further provides that the borrower has the option to retire all obligations due to the lenders, including the net profits interest, for $142.38 million, provided that the borrower enters into definitive documentation with a third party by Nov. 15 to finance the repurchase and that such repurchase occurs by Dec. 31. Both dates can be extended by 30 days to accommodate regulatory requirements, if necessary.

Such amount will increase to the extent that the lenders incur professional fees after the effective date that are payable by the borrower under the terms of the credit agreement.

Morgan Stanley Capital Group, Inc. is the administrative agent.

Defaults

As reported on May 23, American Shale is in default under the credit agreement because it has failed to maintain the asset coverage ratio since Sept. 30, 2015; to timely effect the Tug Hill disposition; to timely engage a financial adviser reasonably acceptable to the administrative agent; to timely commence related refinancing activities and to timely provide materials required for the months ended Dec. 31, 2015, Jan. 31, 2015, Feb. 29, 2015 and March 31, 2015, the annual financial statements for the year ended Dec. 31, 2015, the reserve report for the year ended Dec. 31, 2015 and the quarterly report for the quarter ended Sept. 30, 2015.

Trans Energy is an oil and gas exploration and production company based in St. Mary's, W.Va.

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