Twin Butte convertible holders vote down plan; forbearance terminated

By Angela McDaniels

Tacoma, Wash., Aug. 29 – Twin Butte Energy Ltd.’s proposed acquisition by Reignwood Resources Holding Pte. Ltd. was not approved by the holders of its 6.25% convertible subordinated debentures due 2018, and the company may face receivership as a result, according to a company news release.

The company needed the approval of the holders of at least two-thirds of the principal amount of the debentures. At a meeting on Aug. 29, the debentureholders voted roughly 32% in favor of the arrangement.

The failure of the debentureholders to approve the arrangement terminates the forbearance period provided by Twin Butte's senior lenders.

As a result, the lenders are now entitled to exercise any rights or remedies they have, including accelerating the repayment of the company's outstanding bank debt and enforcing their security by appointing a receiver to liquidate the company's assets and manage the company's affairs.

Twin Butte said it plans to hold discussions with its lenders.

The company entered into the forbearance agreement with its senior lenders after it failed to repay its C$85 million non-revolving credit facility on June 23. The forbearance agreement extended the revolving period of the company's C$140 million revolving credit facility from June 23 to the earlier of closing of the Reignwood acquisition and the termination of the arrangement agreement.

The company is restricted from making any payment of interest on the outstanding debentures while it is in default under the credit agreement. As a result, the semiannual interest payment on the debentures payable June 30 was deferred. This interest was going to be paid once the arrangement closed in connection with the acquisition of the debentures.

Reignwood offered 14% of par

Under the proposed plan, Reignwood Resources agreed to indirectly acquire all of Twin Butte’s outstanding shares for C$0.06 each and all of the outstanding convertibles for C$140 per C$1,000 principal amount plus accrued interest.

Reignwood is a partnership of the Reignwood Group and Horizon Holding Group, privately held corporations domiciled in Hong Kong and Canada, respectively.

Because the arrangement did not receive the needed approval, the arrangement agreement may be terminated by either Twin Butte or Reignwood without the payment of a break-up fee.

The acquisition was going to be completed by way of a plan of arrangement under the Business Corporations Act. Twin Butte will not proceed with its scheduled application for a final order of the Court of Queen's Bench of Alberta to approve the arrangement on Sept. 2.

The company’s shareholders also met on Aug. 29. They voted roughly 78% in favor of the acquisition.

Plan receives pushback

As previously reported, an ad hoc group of debentureholders opposed the proposed arrangement agreement with Reignwood Resources, saying it believes the company can negotiate a better outcome for the debentureholders.

Murray Bockhold of Bockhold Investment Management Group, a member of the ad hoc group, put out an open letter to the company’s debentureholders on Aug. 24. A principle of Canadian law is that “equityholders of an insolvent company should not be compensated on account of their equity until after debt has been paid in full,” the letter stated.

According to Twin Butte, the offer from Reignwood Resources was the only one received that preserved any value for debentureholders or equityholders. The other offers resulting from what Twin Butte called an “extensive process” merely satisfied the company’s obligations to repay amounts owed under its credit facilities, Twin Butte said.

As for the debentureholders ranking ahead of shareholders, Twin Butte said that statement is inaccurate, because the arrangement is not a realization in an insolvency proceeding but rather an offer from a third party to acquire the claims against the assets of the debentureholders.

Twin Butte is an oil and gas company based in Calgary, Alta.

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