3/15/2019: Company files year end 2018 financial results.
BDC Credit Reporter View
6/3/2019: After reviewing the components of the recapitalization, we wonder if the relatively modest debt forgiveness in the debt for equity swap will make a very meaningful difference to the credit outlook, especially for the junior 2023 second lien debt where the $100mn plus in BDc exposure lives. We are maintaining the Company on our Watch List even though the BDCs have marked the debt at very close to par at March 31, 2019. There are still 4 years to go till maturity and given the nature of the business; the heavy debt and the chequered history, caution must be the byword.
5/29/2019: The Company’s restructuring plan has been approved by the Canadian authorities and all the various stakeholders. However, this is unlikely to be the last tweaking of Bellatrix’s capital structure before the 2023 debt – held by the 4 BDCs involved – comes due. For the moment, though, the pressure is off.
4/17/2019: Bellatrix is in a perpetual state of restructuring. Just months after converting some debt to a second lien 2023 Term Loan, the Canadian energy company is undertaking an even more ambitious program that will reduce debt outstanding by 23% and temporarily reduce interest expense. There will be no debt maturities till 2023, with the exception of the secured Revolver, which is renewed annually and which is only half drawn. For the BDC debt holders – all in the second lien 2023 Term Loan – the structure is mostly favorable. The 2020 debt is either converted into pari passu or more junior debt or into equity. However, a portion is added to the balance of the 2023 obligation. Bottom line: the can seems to have been successfully kicked down the road. The question is whether that extra time will benefit the Company and its debt holders or will a day of reckoning occur. If the latter occurs, a loss is possible on the ever growing second lien debt, which ranks below the Revolver which has a first call on the Company’s gas assets. The BDCs involved may mark the debt at close to par, but the Company remains on our Watch List.
October 2018: We noted that the Company’s stock price had dropped to a new low shortly after reporting IIIQ 2018 results. We also read a useful Seeking Alpha article that indicated profitability is challenged and a wall of debt hits in 2020 even as EBITDA is eroded by lower production; high capex and lower prices. All ingredients sufficient to put Bellatrix back on the Watch List from which the Company had been removed after IIIQ 2018 debt valuations improved from a 30% discount to par. Thankfully, there is no immediate risk of default as the Company is operating well within its newly reset debt covenants, but our job is to look down the road to when the debt matures in 2023, but which has a built in catalyst point in 2020. All debt is held by FS Investment Group BDC entities, especially its energy-focused fund. The group just increased its exposure from $79mn to $104mn, and has a second lien on all the Company’s assets.
6/3/2019: The Company completes recapitalization transaction.
5/28/2019: The Canadian court approves the recapitalization plan, which will be completed May 30, 2019.
4/16/2019: Canadian court authorizes recapitalization meeting of debt holders for Company.
[The ]proposed Recapitalization Transaction would on implementation, among other things, (i) reduce the Company’s total outstanding debt by approximately C$110 million (approximately 23%), (ii) reduce annual cash interest payments by over C$12 million annually until December 31, 2021, (iii) address certain debt maturities such that the Company would have no maturity dates in respect of any non-revolving debt until 2023; and (iv) improve and strengthen the Company’s overall financial position…To date, the proposed Recapitalization Transaction has the support of holders of approximately 90% of the Senior Unsecured Notes and approximately 50% of the Convertible Debentures that have agreed to vote in favour of the Plan of Arrangement pursuant to support agreements entered into with the Company.
4/2/2019: Moody’s view on proposed recapitalization.
3/29/2019: Company proposes major recapitalization program.
“Reduce the Company’s total outstanding debt by approximately C$110 million (approximately 23%) and reduce annual cash interest payments by over C$12 million annually until December 31, 2021; and
Address the Company’s debt maturities such that the Company would have no maturity dates in respect of any non-revolving debt until 2023.
The Recapitalization Transaction, among other things, involves:
- an exchange of all of the Company’s outstanding 8.5% senior unsecured notes due 2020 (the “Senior Unsecured Notes”) for, in the aggregate and taking into account early consent consideration, a combination of US$50 million of new second lien notes due September 2023 (the “New Second Lien Notes”), US$50 million of new third lien notes due December 2023 (the “New Third Lien Notes”) and approximately 51% of the common shares of Bellatrix outstanding immediately following the implementation of the Recapitalization Transaction; and
- an exchange of all of the Company’s outstanding 6.75% convertible debentures due 2021 (the “Convertible Debentures”) for, in the aggregate and taking into account early consent consideration, approximately 32.5% of the common shares of Bellatrix outstanding immediately following the implementation of the Recapitalization Transaction.
In connection with the Recapitalization Transaction, Bellatrix has entered into support agreements (the “Support Agreements”) with holders of approximately 90% of the Senior Unsecured Notes (the “Initial Consenting Noteholders”) and a holder of approximately 50% of the Convertible Debentures (the “Initial Consenting Debentureholder”). Pursuant to the Support Agreements, the Initial Consenting Noteholders and the Initial Consenting Debentureholder have, among other things, agreed to support the Recapitalization Transaction.
IIIQ 2018: Portion of Senior Notes held by BDCs replaced by Second Lien Term Loan due 2023.
During 2018, Bellatrix completed a debt refinancing transaction pursuant to a note purchase agreement with certain holders of the Senior Notes to exchange US$80.1 million of the Company’s Senior Notes for US$72.1 million of second lien notes due 2023 . The Second Lien Notes bear interest at 8.5%per annum, payable quarterly, and are secured by a $250 million demand debenture over all of the Company’s assets, which is subordinated to the security provided under the Credit Facilities. The Note Purchase Agreement provides that the maturity date of Second Lien Notes will be accelerated to March 14, 2020 if more than US$25 million principal amount of Senior Notes remains outstanding as at March 14, 2020.In addition, the Exchanging Noteholders have agreed to subscribe for between US$30 million and US$40 million of additional Second Lien Notes, with the proceeds to be used for capital expenditures, development capital and Senior Notes purchases. During 2018 Bellatrix issued US$30 million of additional Second Lien Notes to the Exchanging Noteholders.
The Exchanging Noteholders also agreed to allow for up to US$50 million in additional Second Lien Note issuances to be used exclusively for future Senior Note exchanges on or before February 28, 2019. Such availability period has as of March 14, 2019 not been further extended by the parties to the Second Lien Notes Agreement. However, the Company remains in ongoing confidential discussions with parties across its capital structure in connection with potential transaction alternatives. If any of the incremental US$50 million of Second Lien Note capacity is utilized, then the Exchanging Noteholders’ commitment to subscribe for additional Second Lien Notes will be limited to US$30 million. The Note Purchase Agreement also provides for the ability to issue additional subordinate secured and unsecured debt in subsequent refinancing and capital raising transactions.Pursuant to the Note Purchase Agreement, Bellatrix issued warrants to purchase an aggregate of 3,088,205 common shares of Bellatrix to the Exchanging Noteholders at an exercise price of $1.30 per Common Share expiring five years from the issuance date of the warrants. The Warrants will only vest if and when the Company accesses any of the incremental US$50 million of Second Lien Note capacity.