Twin Butte Energy lenders notify of their intent to enforce security

By Wendy Van Sickle

Columbus, Ohio, Aug. 30 – Twin Butte Energy Ltd.’s lenders issued a letter to the company announcing their intention to enforce their security of about C$205.4 million owed under the company’s senior secured credit facilities, according to a Tuesday press release.

The letter followed the Monday meeting of company securityholders at which holders of the company’s 6.25% convertible subordinated debentures due 2018 voted down Twin Butte’s proposed acquisition by Reignwood Resources Holding Pte. Ltd.

As a result of the company’s current financial position and following a thorough review of strategic alternatives, Twin Butte has agreed to waive the 10-day notice period set forth under the Bankruptcy and Insolvency Act for the enforcement by the lenders’ of their security “in order to, among other things, allow the company's assets to be operated in a safe and responsible manner,” according to the release.

The application for the appointment of the receiver is anticipated to be heard on Thursday at the Court of Queen's Bench in Calgary, Alta.

The company said it expects FTI Consulting Canada Inc. to be appointed receiver and manager over its assets. Upon the appointment of the receiver, it is expected that all of Twin Butte's directors will resign.

The company also said it has received a notice from the Toronto Stock Exchange that it is reviewing the eligibility of the continued listing of Twin Butte's common shares and debentures. The company said it has been granted 30 days to regain compliance with these requirements. Twin Butte said it expects its common shares and debentures may be suspended or delisted prior to the 30 days.

As previously reported, the company needed the approval of the holders of at least two-thirds of the principal amount of the debentures at Monday’s meeting. The debentureholders voted roughly 32% in favor of the arrangement.

The failure of the debentureholders to approve the arrangement terminated the forbearance period provided by Twin Butte's senior lenders.

As a result, the lenders became entitled to exercise any rights or remedies they have, including accelerating the repayment of the company's outstanding bank debt and enforcing their security by appointing a receiver to liquidate the company's assets and manage the company's affairs.

The company entered into the forbearance agreement with its senior lenders after it failed to repay its C$85 million non-revolving credit facility on June 23. The forbearance agreement extended the revolving period of the company's C$140 million revolving credit facility from June 23 to the earlier of closing of the Reignwood acquisition and the termination of the arrangement agreement.

The company is restricted from making any payment of interest on the outstanding debentures while it is in default under the credit agreement. As a result, the semiannual interest payment on the debentures payable June 30 was deferred. This interest was going to be paid once the arrangement closed in connection with the acquisition of the debentures.

Under the proposed plan, Reignwood Resources agreed to indirectly acquire all of Twin Butte’s outstanding shares for C$0.06 each and all of the outstanding convertibles for C$140 per C$1,000 principal amount plus accrued interest.

Reignwood is a partnership of the Reignwood Group and Horizon Holding Group, privately held corporations domiciled in Hong Kong and Canada, respectively.

Because the arrangement did not receive the needed approval, the arrangement agreement may be terminated by either Twin Butte or Reignwood without the payment of a break-up fee.

The acquisition was going to be completed by way of a plan of arrangement under the Business Corporations Act. Twin Butte will not proceed with its scheduled application for a final order of the Court of Queen's Bench of Alberta to approve the arrangement on Sept. 2.

The company’s shareholders also met on Aug. 29. They voted roughly 78% in favor of the acquisition.

As previously reported, an ad hoc group of debentureholders opposed the proposed arrangement agreement with Reignwood Resources, saying it believes the company can negotiate a better outcome for the debentureholders.

Murray Bockhold of Bockhold Investment Management Group, a member of the ad hoc group, put out an open letter to the company’s debentureholders on Aug. 24. 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 stated.

According to Twin Butte, the offer from Reignwood Resources 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.

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.

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

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