EXCO hires counsel and advisor, grapples with liquidity squeeze, failed asset sale

21 August 2017

EXCO Resources is working with advisor PJT and legal counsel Kirkland & Ellis to lead restructuring negotiations, said three sources familiar with the matter. The company earlier this month said it could be forced to file for Chapter 11 due to a liquidity squeeze.

 

Management previously worked with Kirkland in mid-March to issue a USD 300m 1.5 lien payment-in-kind (PIK) note due 2022 that took out its covenant-laden revolver. The liability management exercise also involved an exchange of USD 683m of senior secured second lien term loans due 2020 for a similar amount of 1.75 lien PIK term loans due 2020. The 1.5 and 1.75 lien loans are consolidated in the hands of three holders, including Oaktree Capital and private equity firms Bluescape Energy Partners and Fairfax Partners, according to SEC filings.

 

Together, the three holders own more than two-thirds of the secured debt, considered the fulcrum security, and are expected to drive negotiations for a plan of reorganization that would give them the bulk of the reorganized equity, said a fourth source familiar. Also, a filing would potentially allow the company to renegotiate some of its unfavorable contracts, including its midstream contact.

 

 

The company warned recently in its 2Q17 filings that it could file for Chapter 11 given that it won’t have enough liquidity to address its USD 131.5m 7.5% senior unsecured notes that mature in 2018 and might not be able to make the interest payment on the loans in cash in December. As part of the secured debt offering, EXCO had the option to pay the interest on the loans by issuing additional shares. But the collapse in oil prices pressured its stock, making it harder to issue more shares without running into the risk of triggering a change of control.

 

EXCO had USD 170m of liquidity as of 30 June comprising USD 31m cash and USD 138m available under its USD 150m revolver after accounting for USD 12m letters of credit. The issuer borrowed an additional USD 50m under its revolving credit during the months of July and August to partly finance the USD 19m acquisition of core North Louisiana natural gas properties and undeveloped acreage.

 

Management’s hopes to boost liquidity with proceeds from a USD 300m sale of oil and gas properties in South Texas took a hit last week when the company announced that the sale agreement was terminated. EXCO terminated the sale to a subsidiary of Venado Oil and Gas after it lost a long-term natural gas sales contract with Chesapeake Energy Marketing.

 

The USD 131.5m 7.5% unsecured bonds due 2018 traded in odd lots today at 20, according to MarketAxess. The company's equity traded up today 20.2% to USD 1.25 for a market capitalization of USD 27m. The stock is down 48.5% in the past month and 90.6% year-to-date.

 

Calls to EXCO and PJT were not returned.