Energy XXI skips interest due on Gulf Coast’s 11% and 6 7/8% notes

By Susanna Moon

Chicago, March 15 – Energy XXI said it decided to skip paying interest due Tuesday on Energy XXI Gulf Coast, Inc.’s 11% senior secured second-lien notes and its 6 7/8% senior notes, starting a new 30-day grace period.

Meanwhile, the company paid the interest due Feb. 16 on EPL Oil and Gas, Inc.’s 8¼% senior notes due 2018, according to a company notice.

The company also has secured an extension until April 15 on the waiver for its first-lien credit agreement. In return, the company agreed to reduce its borrowing base to $377.7 million from $500 million and unwind hedging transactions and use those proceeds to repay outstanding loans to EPL under the credit agreement, with the repayments resulting in more cuts in the borrowing base of EGC and EPL.

PJT Partners LP is Energy XXI’s financial adviser and Vinson & Elkins LLP is its legal adviser.

The company said it is continuing to work with its financial and legal advisers “to analyze a variety of solutions to reduce its overall financial leverage, while maintaining primary focus on preserving liquidity. As part of this process, Energy XXI continues to engage in discussions with its debtholders and other stakeholders to develop and implement a comprehensive plan to restructure its balance sheet.”

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Energy XXI said on Feb. 16 that it missed the interest due that day on EPL’s 8¼% senior notes due 2018 in an effort to preserve liquidity while cutting leverage.

The company also said that its low stock price could trigger a put option under its $400 million principal amount of 3% senior convertible notes due 2018.

Without a “material improvement in oil and gas prices or a refinancing or some restructuring of our debt obligations or other improvement in liquidity, we may seek bankruptcy protection to continue our efforts to restructure our business and capital structure and may have to liquidate our assets,” the company said at the time.

The company noted that beginning Jan. 11 the company’s common stock has been “generally” trading on Nasdaq at less than $1.00 per share. If the company’s stock falls below the minimum bid price of $1.00 per share for 30 consecutive business days, Nasdaq will issue a compliance period of 180 calendar days to regain the listing requirements.

If the company’s stock is delisted, it could constitute a fundamental change under the terms of the 3% convertibles, which would allow holders to put the notes at par plus accrued interest to but excluding the fundamental change repurchase date.

The company said it cannot assure that it would have the liquidity to fund the repurchase “given the severe liquidity constraints of the company.” The acceleration would cause a cross-default or cross-acceleration of all of the company’s other outstanding debt, which “could have a wider impact on our liquidity than might otherwise arise from a default or acceleration of a single debt instrument.” If that happens, the company said it would lack the liquidity to repay its outstanding debt.

“Our priorities during this period of challenging commodity prices are two-fold,” Energy XXI’s president and chief executive officer John Schiller said in the release.

“We are managing operations to be efficient through a disciplined capital program while also advancing our deleveraging plan.”

Energy XXI is an independent oil and natural gas development and production company based in Houston.

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