U.S. Hedge Fund Left Out of Lightstream Bond Swap Sues in Canada

A U.S. hedge fund that said it lost millions after being left out of Lightstream Resources Ltd.’s privately negotiated debt exchange is suing the firm.

FrontFour Capital Group LLC is seeking to block Lightstream’s debt exchange or force the company to cut it in on the deal, as well as make it pay the $4.5 million the Greenwich, Connecticut-based hedge fund said it lost as a result, according to documents filed in a Calgary court on July 14.

FrontFour claimed the debt swap wasn’t fair because it was was never told of the deal or given a chance to participate, even though it held $31.8 million of Lightstream’s bonds.

“We view the lawsuit as being entirely without merit and we’ll defend it,” Annie Belecki, general counsel of Calgary-based Lightstream, said in a phone interview Friday. Representatives for FrontFour didn’t immediately return phone and e-mail messages seeking comment.

The deal saw Lightstream swap $465 million of its $800 million bonds for $395 million in new notes, lowering its overall debt burden and interest rate and bringing in new cash, while giving the two investors who proposed the private deal a higher claim on its assets.

Investors holding the $335 million of bonds left out of the deal were knocked down in the capital structure and saw their holdings plunge in trading by more than 20 percent The bonds were downgraded by Moody’s Investors Service. Lightstream, a producer of light oil in Alberta and Saskatchewan, has been struggling as the oil price rout reduces the cash needed to drill and cover debts.

FrontFour said in its court filings the July 2 announcement of the debt exchange came as a “total surprise” as it had not been notified previously.

The case is FrontFour Capital Corp. v. Lightstream Resources Ltd., Court of Queen’s Bench of Alberta (Calgary).

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