American Energy – Permian Basin extends exchange offers to June 26

By Marisa Wong

Morgantown, W.Va., June 24 – American Energy – Permian Basin, LLC and subsidiary AEPB Finance Corp. extended the exchange offers for their $460 million 13% senior secured first-lien notes due 2020, $291,652,000 8% senior secured second-lien notes due 2020, $229,359,000 floating-rate senior notes due 2019, $592,958,000 7 1/8% senior notes due 2020 and $526,069,000 7 3/8% senior notes due 2021 to midnight ET on June 26 from midnight ET on June 21, according to a press release.

The company said it continues to engage in discussions with a group of noteholders and expects, but cannot guarantee, that the noteholders will agree to tender all of their notes and consent to the proposed amendments in the consent solicitations under a support agreement.

As of 5 p.m. ET on June 21, 8.29% of the notes had been tendered and not withdrawn, including $62,858,000 principal amount, or 13.66%, of the 13% first-lien notes, $13,742,000 principal amount, or 4.71%, of 8% second-lien notes and $97,404,000 principal amount, or 7.22%, of the floating-rate and 7 1/8% and 7 3/8% notes.

As announced on May 6, the issuers are offering

• $1,000 principal amount of new 13% senior secured first-lien notes due 2023 in exchange for the existing 13% first-lien notes;

• $1,000 principal amount of new 10% senior secured second-lien notes due 2023 in exchange for the 8% second-lien notes;

• $600 principal amount of new 10%/12% senior secured third-lien PIK toggle notes due 2024 in exchange for the floating-rate notes;

• $550 principal amount of the new PIK toggle notes in exchange for the 7 1/8% notes; and

• $550 principal amount of the new PIK toggle notes in exchange for the 7 3/8% notes.

Each total consideration noted above is payable to holders who tender their notes by the early tender time, 5 p.m. ET on June 5.

Holders who tender their notes after the early deadline but prior to the offer expiration will only be eligible to receive the exchange consideration, which is the total consideration less $50 principal amount of new notes for each $1,000 principal amount of existing notes.

The issuers will also pay in cash accrued interest to but excluding the applicable settlement date. The early settlement date will be soon after the early tender time, and the final settlement date will follow soon after the expiration time.

In connection with the exchange offers, the issuers are also soliciting consents from eligible noteholders to amendments to the indentures governing the notes to eliminate substantially all of the restrictive covenants, specified events of default and certain other provisions as well as the release of the liens on all of the collateral securing the existing first-lien notes and second-lien notes.

The proposed amendments will become effective for each series of old notes – or, with respect to the existing senior notes, all three series taken together as one class – for which participation in the related exchange offer exceeds 50%. With respect to the release of liens on all of the collateral securing the existing first- and second-lien notes, participation must exceed 66 2/3%.

The exchange offers are conditioned on the minimum tender of at least 95% of the aggregate principal amount of each series of notes.

When the offer began, the early tender time was 5 p.m. ET on May 16. It was subsequently extended to May 21, May 23, May 31 and finally to 5 p.m. ET on June 5.

The expiration was originally set for midnight ET on May 31 before being extended to midnight ET on June 19, then to midnight ET on June 21 and most recently to midnight ET on June 26.

Possible Chapter 11

According to a prior news release, the company failed to make its scheduled interest payment on the existing senior notes that was due on May 1 in the aggregate amount of $46.1 million.

Failure to make this payment within a 30-day grace period from May 1 is an event of default under the indentures governing the notes.

On June 3, the issuers said they entered into a forbearance agreement with some noteholders scheduled to end June 14.

The company said that if the exchange offers are not completed, there is substantial doubt that it will be able to make this interest payment within the grace period or to make the next scheduled interest payment and to continue as a going concern.

Even if the exchange offers close, there can be no assurance that the company’s liquidity and financial condition will improve or that the company will avoid bankruptcy or similar proceeding, the news release noted.

In the event the minimum tender condition is not met, the company reserves the right, subject to any required consent of the significant noteholders, to make some changes to the exchange offers and enter into related transactions that may include, but are not limited to, the issuance of new fourth-lien convertible notes to Sable Permian as consideration for the dropdown and cash investment and/or the issuance of notes structurally senior to, but on the same terms and in the same aggregate principal amount as, the new notes by AEPB Finance and a newly formed subsidiary as co-issuers, and the concurrent issuance of an agreed-upon amount of new first-lien notes to Sable Permian as consideration for the dropdown and/or cash investment.

If the minimum tender condition is not satisfied and the company does not complete the exchange offers, the company expects that it and some of its subsidiaries, other than AEPB Acquisition and its subsidiaries, will file for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code.

The company said it has held preliminary discussions with some of its significant noteholders regarding filing a bankruptcy petition and expects to continue those discussions during the exchange offers.

The company added that it is evaluating and will continue to explore strategic alternatives to the exchange offers, including filing a voluntary petition for Chapter 11 bankruptcy relief, in consultation with its board of managers, including a special committee of independent board members.

The company has retained Greenhill & Co. to, among other things, advise on these strategic alternatives, including any bankruptcy filing.

RBL facility

Contemporaneously with the exchange offers and asset contributions, and as a condition of the exchange offers and asset contributions, AcqCo will enter into a new senior secured reserve-based lending facility with commercial lenders engaged in lending in the oil and gas industry and will terminate its existing revolving credit facility.

JPMorgan Chase Bank, NA has agreed under a commitment letter to provide 100% of the new facility.

Access to the new facility is also conditioned on, among other things, completion of the exchange offers.

The facility is expected to have an initial borrowing base of $700 million, subject to semiannual redeterminations, and is expected to mature on the earlier of five years after the closing date and 91 days prior to the earliest maturity date of any senior secured or unsecured notes of the company, including any old notes not exchanged in the exchange offers.

The exchange agent and information agent for the exchange offers is D.F. King & Co., Inc. (212 269-5550, 800 549-6697 or aepb@dfking.com).

American Energy – Permian Basin, formerly known as Sable Permian Resources Land, LLC, is an independent oil and natural gas company based in Houston.

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