Twin Butte says Reignwood offer remains best bet for debentureholders

By Wendy Van Sickle

Columbus, Ohio, Aug. 25 – Twin Butte Energy Ltd.’s board of directors continues to believe a proposed arrangement agreement with Reignwood Resources Holding Pte. Ltd. represents “the most equitable sharing of value” between all stakeholders, including its secured lenders, debentureholders, shareholders and employees, the company said in news release Thursday.

The release was issued in response to an open letter to the company’s debentureholders put out Wednesday by Murray Bockhold of Bockhold Investment Management Group, who said in the letter he was part of “an informal committee of concerned debentureholders.”

The letter claimed Twin Butte’s proposed transaction with Reignwood would result in debentureholders receiving payments of C$140 million per C$1,000 principal amount, for a total of C$11.9 million, while C$22.4 million is paid out of the money equity.

A principle of Canadian law is that “equityholders of an insolvent company should not be compensated on account of their equity until after debt has been paid in full,” the letter states.

According to Bockhold, debentureholders’ rightful payment under the arrangement should be C$404 per C$1,000 principal amount.

In its response to this C$404 claim, Twin Butte said Reignwood is not willing to entertain changing its offer and that the offer preserves value for all stakeholders. If the offer is not accepted, Twin Butte said its banking syndicate may exercise their rights to appoint a receiver and look to liquidate the company's assets with the goal of maximizing funds for repayment of the banks’ secured position.

As for the debentureholders ranking ahead of shareholders, Twin Butte said that statement is inaccurate, because the arrangement is not a realization in an insolvency proceeding, but rather an offer from a third party to acquire the claims against the assets of the debentureholders.

According to Twin Butte, its board of directors, supported by the fairness opinion of independent adviser Canaccord Genuity Corp., concluded that the recovery to debentureholders under the Reignwood offer will be “far superior” to their recovery under an insolvency, which the board expects would likely be nothing at all.

Bockhold’s letter also charges that the arrangement was crafted to protect board insiders and members of management who hold large equity claims.

“As evidenced by the fact that the company did not obtain a fairness opinion with respect to the debentures before proposing the arrangement, as was provided with respect to equity, it's clear that from the outset Twin Butte has had no regard for the interests of debentureholders,” the letter states.

“When it failed to gain sufficient support and was forced to postpone meetings of security holders, Twin Butte secured a fairness opinion on the debentures that is purely conclusory from a dealer rather than Peters & Co. and National Bank that were intimately involved in the process.

“These are the same two firms that led the December 2013 offering for the debentures that you currently own. The debenture fairness opinion fails to explain how it can be fair to debentureholders to pay anything to equity when debentures are not being paid in full.”

Twin Butte countered that it had the support of Peters & Co. Ltd. and National Bank when it ran a “fulsome strategic alternatives process involving over 450 potential counterparties,” which resulted in Twin Butte’s entering into the arrangement agreement with Reignwood Resources and Reignwood Resources Trading UK Ltd. on June 23.

As for the charge of the arrangement protecting board members and managers, Twin Butte reiterated that the offer was the only one received that preserved any value for debentureholders or equityholders. The other offers resulting from what Twin Butte called an “extensive process” merely satisfied the company’s obligations to repay amounts owed under its credit facilities, Twin Butte said.

Twin Butte also said in its response that the facts are

• The company announced it was entering into a strategic alternatives process in December 2015;

• The company's bank syndicate determined in January 2016, mostly due to the reduction in forecast commodity prices, that its credit facilities were being cut significantly, requiring repayment of its C$85 million non-revolving credit facility by April 30;

• Subsequent to April 30, Twin Butte’s bank syndicate has provided multiple extensions of the maturity date of the C$85 million non-revolving credit facility. Currently, the company is operating under a forbearance agreement with its bank syndicate under which the lenders have agreed to forbear from exercising their rights and remedies for default subject to certain conditions including that the plan of arrangement with Reignwood is completed by Sept. 26;

• The offer received from Reignwood was structured by Reignwood and their advisers and was non-negotiable. The offer was only offer received that preserved value for all stakeholders, including debentureholders and shareholders, as well as its other creditors, including the bank syndicate. No other offer received during the process provided any compensation for debentureholders or shareholders, the company said;

• The consideration under the arrangement provided a 20% premium to debentureholders and a 5% discount to shareholders based on the 20-day volume weighted average price of the debentures and shares, as of the arrangement’s announcement on June 24;

• A proposal from Bockhold and another debentureholder to convert debentures into equity shares was provided to Reignwood's advisers, and they have informed Twin Butte they will not entertain such a proposal and that there will be no changes to their current offer.

Twin Butte said an adverse vote by either the debentureholders or the shareholders can cause the arrangement to be terminated. In that case, the company would be in default under its senior lending facility, entitling the lenders to take steps to enforce their security.

A special meeting for securityholders to vote on the arrangement is set for 11 a.m. ET on Aug. 29.

Bockhold said the informal committee members plan to vote no at that meeting, “to maximize our leverage so we can get a better deal” and are asking other debentureholders to vote in kind.

The board said it stands by its assertion that stakeholders should vote in favor of the arrangement and suggested stakeholders contact the company or its advisers for information. Votes submitted by proxy may be reversed or revoked up until the vote is held, the company said.

Twin Butte is advised by Laurel Hill Advisory Group (877-452-7184, 416-304-0211 or assistance@laurelhill.com).

Twin Butte is an oil and gas company based in Calgary, Alta.

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