Goodrich Petroleum eyes out-of-court restructuring via exchange offers

By Caroline Salls

Pittsburgh, Feb. 16 – Goodrich Petroleum Corp. is attempting to voluntarily restructure its balance sheet outside of bankruptcy through a recapitalization plan, according to an 8-K filed Tuesday with the Securities and Exchange Commission.

As previously reported, Goodrich is conducting debt and preferred stock exchange offers. The company said it structured the recapitalization plan and exchange offers “in response to the current low commodity price environment that has had a significant, adverse impact” on the company and the industry as a whole.

A special shareholder meeting is scheduled for March 14. The recapitalization plan requires approval of additional shares from common shareholders and participation in the exchange by holders of at least 95% of its debt and a majority of the preferred shareholders.

Under the plan, the company said all participating stakeholders would receive common shares in a recapitalized company with only secured debt and minimal interest expense, versus little to no recovery in a potential bankruptcy scenario.

While it is not currently in default under its existing debt instruments, Goodrich said its ability to make the interest payments beginning in March on its unsecured and second-lien notes, as well as service its other debt and fund operations, “is at significant risk as a result of the sustained continuation of the current low commodity price environment.”

Contingency plan

If it is unable to complete the recapitalization plan, Goodrich said it would very likely need to file bankruptcy, and the company’s board authorized it to hire legal counsel to work with the company on a contingency plan to prepare for a bankruptcy filing.

If bankruptcy becomes necessary, Goodrich said its first-lien and second-lien debtholders, who had $202 million of debt outstanding on Jan. 20, would have a priority claim as secured debtholders.

Meanwhile, if at least the minimum threshold for the exchange offers is met, the company said it will reduce overall debt by $213 million to $224 million and reduce its preferred liquidation preference by $137 million to $273 million.

The company said it will also eliminate roughly $15 million and defer another $15 million of annual cash interest expense through the exchanges.

Exchange offer terms

Goodrich said a total of 32.5% of the common stock under the recapitalization plan will be owned by the existing common stock shareholders and by management and employees, and 67.5% would be issued to the existing unsecured noteholders and preferred shareholders.

In addition, the company said 16.5% would be issued to the existing preferred shareholders if fully subscribed, with each series allocation based primarily on original liquidation preference.

Goodrich said its preferred shares currently trade as if no dividends will be paid in the future, so the allocation to the preferred stock holders is designed to incentivize holders to participate in the exchange in an attempt to recover some portion, if not all, of their liquidation preference of $273 million. Preferred holders would recover full liquidation preference if the common stock price rises between $1.93 and $5.62 per common share in the future, depending on the series.

The company said unsecured debtholders will receive a minimum of 51% of the common stock, assuming full exchange participation, and 54.32% at minimum participation from the preferred shareholders.

According to the filing, the company is offering to exchange the $224.2 million of unsecured notes into common stock at an exchange ratio of 800.635 shares of common stock per $1,000 principal amount of notes for its 8 7/8% senior notes due 2019, 3.25% convertible senior notes due 2026, 5% convertible senior notes due 2029 and 5% convertible senior notes due 2032.

The exchange ratio for Goodrich’s 5% convertible exchange senior notes due 2032 is 1,601.27 shares of common stock per $1,000 principal amount of notes.

In addition, the company said it will offer to exchange its 8% second-lien senior secured notes due 2018 and 8 7/8% second-lien senior secured notes due 2019 for new senior secured notes. Interest on these notes can be paid either in cash or in kind or deferred until maturity.

The exchange offers will expire on Feb. 24.

Goodrich is a Houston-based independent oil and gas exploration and development company.

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