July 5, 2016
Trident Announces Recapitalization
Trident Exploration Corp. (“Trident” or the “Company”) has entered into a support agreement (the “Support Agreement”) with the holders (the “Consenting Noteholders”) of approximately 77% of its $175.0 million 8.25% senior unsecured notes due April 13, 2018 (the “Unsecured Notes”) and the holders of rights with respect to the Company’s $22 million aggregate principal amount of its limited recourse debenture dated as of December 10, 2014 (the “Debenture”), to effect a recapitalization and financing transaction (the “Recapitalization”). The Company has also entered into a backstop commitment agreement (the “Backstop Commitment Agreement”) with a holder of the Unsecured Notes (the “Backstop Party”), pursuant to which the Backstop Party will provide a $20 million commitment to backstop the equity raise described below to be conducted in connection with the Recapitalization. Further, the Company has entered into an amendment of its revolving credit facility (the “Revolving Credit Facility”) conditional on completion of the Recapitalization (the “Amending Agreement”).
The Company’s Board of Directors has determined that the Recapitalization offers substantial benefits to the Company and is in the best interests of the Company. Among other things, the Recapitalization significantly reduces and cures existing and foreseeable defaults under the Company's debt covenants and, subject to borrowing base compliance and other conditions, increases liquidity for the Company's operations and allows the Company to make necessary capital investments and accelerate operational improvements.
Recapitalization and Financing Transaction
The Recapitalization has the following key elements:
It is anticipated that the Recapitalization will be carried out by way of a plan of arrangement under the Canada Business Corporations Act (the "Plan of Arrangement"). Implementation of the Plan of Arrangement will be subject to, among other things, Noteholder and Debentureholder approval at the meeting to be held to consider the Plan of Arrangement (the “Meeting”), approval of such other securityholders of Trident as the Court of Queen’s Bench of Alberta (the “Court”) may require, approval of the Court and the receipt of all necessary regulatory and other approvals, including satisfaction of all conditions precedent under the Support Agreement, the Backstop Commitment Agreement and the Amending Agreement.
If the Recapitalization cannot be implemented through a Plan of Arrangement under the Canada Business Corporations Act or, among other reasons, Trident fails to meet the milestones set forth in the Support Agreement, the Backstop Commitment Agreement or the Amending Agreement, Trident may be required to seek to implement (or to permit the relevant counterparty(ies) to implement) the Recapitalization through a proceeding under the Companies' Creditors Arrangement Act, in which case it is contemplated that current equity holders of Trident would have their interests extinguished for no consideration.
The Support Agreement contains certain covenants on the part of Trident and the Consenting Noteholders, including that the Consenting Noteholders, subject to the limitations set forth therein, consent to and support the Recapitalization and the Plan of Arrangement and otherwise support the Company in obtaining approval of the Plan of Arrangement, forbear from exercising any rights or remedies under the indenture governing the Unsecured Notes and refrain from soliciting any competing proposals with respect to the Recapitalization.
Pursuant to the Backstop Commitment Agreement, the Backstop Party has agreed to purchase all of the new Trident common shares offered in the New Common Share Offering that are not duly subscribed for or otherwise purchased by a Noteholder pursuant to the New Common Share Offering. Under the terms of the Backstop Commitment Agreement, the Company will be required to pay, in cash, a termination fee equal to $1.0 million if Trident terminates the Backstop Commitment Agreement to accept a superior proposal. Pursuant to the Backstop Commitment Letter, the Company will also be required to reimburse the Backstop Party for certain fees and expenses, including reasonable and documented fees of legal counsel, and indemnify the Backstop Party under certain circumstances for losses arising out of the Backstop Commitment Agreement and the transactions contemplated thereby.
The Support Agreement and Backstop Commitment Agreement may be terminated upon the occurrence of certain events, including by the Consenting Noteholders or the Backstop Party, as the case may be, for the failure to meet specified milestones related to filing, approval and implementation of the Plan of Arrangement, among other requirements, by either the Consenting Noteholders or the Backstop Party, as the case may be, or Trident in the event of certain breaches by the parties under the Support Agreement or Backstop Agreement, as applicable, and by the Consenting Noteholders or the Backstop Party, as the case may be, for the failure to satisfy certain conditions precedent to the Recapitalization.
The Consenting Noteholders’ and the Backstop Party’s commitments and obligations under the Support Agreement and Backstop Commitment Agreement, respectively, are conditioned upon the satisfaction of all conditions to the effectiveness of the Plan of Arrangement, and other applicable conditions precedent set forth in the Support Agreement and Backstop Commitment Agreement, as applicable.
On or before the following dates, Trident is obligated under the Support Agreement, Backstop Commitment Agreement or Amending Agreement to, or to use commercially reasonable efforts to, as the case may be, complete the following actions:
July 13, 2016 : Court and Meeting Materials Provided to CBCA Director
Further details with respect to the Recapitalization will be included in the information circular to be mailed to Noteholders and the Debentureholder in connection with the Meeting.
Forbearance from Lenders
In conjunction with the Support Agreement, on June 30, 2016 Trident executed the Amending Agreement with the lenders under its Revolving Credit Facility (the “Lenders”) pursuant to which the Lenders have agreed to, among things, support the Recapitalization and forbear from the exercise of rights and remedies within the Revolving Credit Facility, subject to the limitations set forth therein, until the earlier of September 7, 2016 and completion of the Plan of Arrangement (the “Lender Forbearance”), subject to earlier termination as provided therein, to extend the borrowing base redetermination date and term-out date to September 7, 2016 and to waive the existing defaults under the financial covenants in the Revolving Credit Facility as of June 30, 2016. The Lender Forbearance is conditional on, among other terms, no termination of the Support Agreement during the Forbearance Period, implementation of the Recapitalization by no later than September 7, 2016 and upon maintaining Revolving Credit Facility balances within prescribed limits for the Forbearance Period.
Key Terms of Amending Agreement
During the Forbearance Period, Trident’s borrowings under the Revolving Credit Facility are restricted to $75 million. In addition, Trident must maintain drawn balances at levels within $500,000 of weekly estimated drawings from the week ending July 1, 2016 until the Plan of Arrangement is implemented. These limits restrict Trident’s drawings to levels from $72.1 million to $75.0 million and are consistent with Trident’s estimated requirements during the Forbearance Period.
Upon implementation of the Plan of Arrangement, the term-out date will be extended to May 31, 2017, the maturity date under the Revolving Credit Facility will be extended to May 31, 2018, Trident will provide to the Lenders additional interest of 3.0% per annum for the drawings made during the Forbearance Period and an amendment fee of $375,000, and all existing financial covenant defaults under the Revolving Credit Facility as well as transaction defaults thereunder relating to the Racapitalization will be waived. The post- recapitalization borrowing base of the Revolving Credit Facility has been confirmed by the Lenders at $75 million, subject to customary redeterminations thereafter, with the first such redetermination to occur on November 30, 2016.
Within ten business days following implementation of the Plan of Arrangement and in compliance to post- closing commitments in the Amending Agreement, Trident is obligated to have commodity hedge contracts for the fourth quarter of 2016 and for the calendar year 2017 with volumes representing a minimum of 70% of the Company’s first quarter 2016 production level. In addition, commodity hedge contracts for the calendar year 2018 with volumes representing a minimum of 50% of the Company’s first quarter 2016 production level must be in place by the same date.
Trident will be subject to working capital and asset coverage financial covenants calculated quarterly commencing September 30, 2016 substantially similar to the terms in its previous credit facility. Trident’s senior leverage covenant will be calculated quarterly commencing December 31, 2016 and will commence with compliance computed at a maximum ratio of 5.00 to 1.00 of senior debt to EBITDA, calculated in accordance with the Revolving Credit Facility. This maximum ratio will remain at 5.00 to 1.00 for the quarter ended March 31, 2017, and then reduce by 0.25 to 1.00 each quarter until March 31, 2019 where the maximum ratio will be 3.00 to 1.00 for that quarter and thereafter.
Following the payment of all costs related to the Recapitalization and immediately following the implementation of the Plan of Arrangement, Trident anticipates having less than $60 million drawn on the Revolving Credit Facility, with an additional approximately $15 million available for borrowing (subject to conditions) until the November 30, 2016 borrowing base redetermination. The Revolving Credit Facility is anticipated to be the sole credit facility of the Company.
Post-recapitalization, Trident expects that its interest costs on the Revolving Credit Facility will be initially dominated by drawings attracting a rate of CDOR + 3.75% and will approximate under 5.0% per annum for all periods where Trident’s outstanding drawings are less than $68 million. For any period where Trident draws in excess of $68 million, the applicable margin for the facility will increase on total borrowings by 3.0% per annum. Following the implementation of the Plan of Arrangement, taking into consideration prevailing commodity price expectations and foreseeable costs of operations, Trident anticipates the ability to maintain or improve its production base through reinvestment of cash flows and/or reduce drawings on its Revolving Credit Facility over the foreseeable future. Trident expects to operate with cushion inside of the financial covenants established throughout.
Trident has also received agreement from its Debentureholder permitting the Company to defer principal or interest payments due after June 23, 2016. Such payments shall accrue to the Debentureholder’s account until the earlier of implementation of the Plan of Arrangement or August 31, 2016. The Debentureholder has provided the Company with a forbearance prohibiting the exercise of rights and remedies against Trident for the non-payment of amounts deferred during this period (“Debentureholder Forbearance”).
The retirement of the Debenture will allow Trident to retain operating cost synergies estimated at $2.4 million per year and provide increased security, on production that averaged 6.9 mmcf per day in 2015, to its Lenders under the Revolving Credit Facility.
Beginning in May of 2016, Trident entered into confidentiality agreements (the "Confidentiality Agreements") with certain holders of Unsecured Notes in order to facilitate discussion regarding a recapitalization and financing proposal. Pursuant to the Confidentiality Agreements, Trident disclosed information, including certain non-public information (the "Non-Public Information") to those holders of Unsecured Notes either directly or through the legal advisors to the ad hoc committee of holders of Unsecured Notes (the "Ad Hoc Committee"). This news release contains information that is required to satisfy Trident's obligations under the Confidentiality Agreements to now disclose such Non-Public Information.
Trident does not, as a matter of course, publish its business plans, budgets or strategies or make external projections or forecasts of its anticipated financial position, capital expenditures, capital requirements, cash flow, production plans and costs, or results of operations or the assumptions forming the basis for such projections or forecasts. The Non-Public Information provided to certain holders of Unsecured Notes was not prepared with a view to being disclosed publicly and is included in this news release only because such information was made available to these holders of Unsecured Notes; therefore, the inclusion of any Non-Public Information in this news release should not be regarded as an indication that Trident or any other person considered, or now considers, this information to be necessarily predictive of actual future results, and does not constitute an admission or representation by any person that such information is material, or that the expectations, beliefs, opinions, and assumptions that underlie such information remain the same as of the date of this news release. Trident has not made any determination as to whether the Non-Public Information disclosed pursuant to the Confidentiality Agreements may be, or may be deemed to be, in whole or in part, material to an individual in making an investment decision or for any other purpose.
The Non-Public Information was, when provided to certain holders of Unsecured Notes, and continues to be, speculative by its nature and was, and is, based upon numerous expectations, beliefs, opinions, and assumptions, as further described below, and it does not necessarily reflect current estimates, expectations, beliefs, opinions, or assumptions and may not reflect current results or expected future performance. The Non-Public Information provided to certain holders of Unsecured Notes, and therefore contained herein, may be incomplete or may no longer be accurate and it is subject to interpretation. Accordingly, investors are cautioned not to place undue reliance on such information or forward-looking statements.
While presented in this news release with numeric specificity, the projections and other forward-looking financial information were not, when made, and are not historical facts, but are forward-looking statements about the objectives, plans, strategies, goals, financial conditions, results of operations, activities and businesses of Trident and are subject to important risks, uncertainties and assumptions. The forward-looking statements set out in this news release are based upon Trident's reasonable estimates, assumptions and expectations about its business, operations, financial condition, and the markets in which it operates, and upon other third party information and data such as analyst reports, market studies and government projections, in each case available at the time such information was prepared and are subject to significant business, operational, economic, competitive and other uncertainties and contingencies, many of which are beyond Trident's control.
Forward-looking statements are subjective in many respects and reflect numerous assumptions by Trident with respect to future events, economic, competitive and regulatory conditions, financial market conditions and future business decisions, including, but not limited to, the following key assumptions: (i) a successful completion of the Recapitalization; (ii) no material adverse impact on Trident's business on a going forward basis resulting from any recapitalization and financing transaction or otherwise; (iii) a continuation of business arrangements on substantially the same basis as existed prior to the Recapitalization (other than as those business arrangements that may be impacted by the implementation of the Recapitalization); and (iv) its resources and reserves. The results, estimates, projections, events or other forward-looking information predicted in any forward- looking statements may differ materially from actual results or events if known or unknown risks, trends or uncertainties affect Trident's business, or if Trident's estimates or assumptions turn out to be inaccurate. Some assumptions may not materialize, and results, estimates, projections, events and circumstances occurring subsequent to the date on which the information was prepared may be different from those assumed or may be unanticipated, and thus may affect the forward-looking statements in a material manner. In addition, the information in this news release does not contemplate outcomes where Trident is unable to complete the Recapitalization through a Plan of Arrangement and pursues other options, such as a formal insolvency proceeding under the Companies' Creditors Arrangement Act (Canada) or a partial or full break-up and sale of its various operations. Accordingly, it is expected that there will be differences between actual and projected amounts and results, and actual amounts and results may be materially different from those in this news release and there can be no assurance that any projection, estimate or forecast will materialize.
CIBC World Markets Inc. is acting as financial advisor and Osler, Hoskin Harcourt LLP is acting as legal advisor to the Company. Cassels Brock & Blackwell LLP and Akin Gump Strauss Hauer & Feld LLP are acting as Canadian and U.S. legal advisors, respectively, to the Ad Hoc Committee and Backstop Party.
The new common shares of Trident referred to in this press release have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any other jurisdiction and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons absent registration or unless pursuant to an applicable exemption from the registration requirements of the Securities Act and any other applicable securities laws. No public offering of securities will be made in the United States of America or in any other jurisdiction where such an offering is restricted or prohibited. This press release does not constitute an offer to sell or the solicitation of an offer to buy the securities, nor shall it constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful.
Trident is a natural gas exploration and production company with focused operations in Alberta, Canada. The Company is the principal operator in its Mannville Coal Bed Methane operating area in central Alberta and amongst the top five operators within its Horseshoe Canyon Coal Bed Methane operating area in southern Alberta.
Certain information regarding the Company contained herein constitutes forward-looking information and forward-looking statements (collectively “forward-looking statements”) under the meaning of applicable securities laws. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections, guidance or other statements that are not statements of fact, including statements regarding the anticipated benefits of the Recapitalization, including the reduction in debt and interest expense, the financial position of the Company after giving effect to the Recapitalization, the ability of the Company to maintain or improve its production base through the reinvestment of cash flows and/or reduce drawings on its Revolving Credit Facility over the foreseeable future following the completion of the Recapitalization, support from the Debentureholders and Noteholders in respect of the Plan of Arrangement, the availability of support from TRC’s shareholders in respect of the Plan of Arrangement, the anticipated timing for the completion of the Recapitalization, and other risks and uncertainties described from time to time in the Company’s reports and other disclosures to investors. The forward-looking statements contained herein are based on certain key expectations and assumptions made by the Company, including expectations and assumptions concerning the prevailing market conditions, the intentions of its lenders and investors, commodity prices and costs of operations. Although the Company believes that the assumptions underlying, and the expectations reflected in, such forward-looking statements are reasonable, it can give no assurance that such assumptions and expectations will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties and the difference may be material. There are many factors that could cause forward-looking statements not to be correct, including, but not limited to, risks and uncertainties associated with securing the necessary approvals to implement the Recapitalization, risks associated with market conditions, the inability of Trident to complete the Recapitalization and the ability of the Company to continue as a going concern if the Recapitalization is not implemented, the risks associated with the oil and gas industry in general, including operational risks in development, exploration and production, delays or changes in plans with respect to exploration or development projects, capital expenditures, health and safety considerations, reserves and other estimates and projections of production, revenue and costs. The Company is subject to several influencing factors that increase the variability of potential outcomes and may impact forward-looking statements including uncertainty as to the availability of labour and services, commodity prices and exchange rate fluctuations, weather conditions, general business, economic, competitive, political and social uncertainties, capital market conditions and changes to laws and regulations.
The forward-looking statements contained herein are made as of the date of this release solely for the purpose of disclosing the Recapitalization and prospective activities. Trident may, as considered necessary in the circumstances, update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, however, the Company undertakes no obligation to update or revise any forward- looking statement except as required by law. Trident cautions readers that the forward-looking statements may not be appropriate for purposes other than their intended purposes and that undue reliance should not be placed on any forward-looking statement. Trident’s forward-looking statements are expressly qualified in their entirety by this cautionary statement.
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Trident Exploration Corp.
Trident Exploration Corp.