Energy XXI Ltd. and a group of its bondholders are struggling to reach a deal that would give the company some breathing room while stemming losses for the creditors, according to a person with knowledge of the matter.
Pressure is mounting as oil prices trade near six-year lows after a plunge that began in June 2014. Holders of notes due in 2017 and 2018, the two nearest maturities, offered to lengthen their debt in exchange for their $1.3 billion of securities being converted to secured obligations, said the person, who asked not to be named because the negotiations are private.
The investors want the company to buy back their debt at a price that’s 20 cents on the dollar more than current trading levels, the person said. The company’s offering a premium of 10 cents on the dollar.
For the bondholders, the exchange would limit losses on their investments and put them ahead of other unsecured creditors. The bonds have dropped more than 30 cents on the dollar since the talks were first reported in May, wiping out more than $400 million of value, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Hedge fund firm Hutchin Hill Capital is part of the bondholder group, which is being advised by Wilmer Cutler Pickering Hale & Dorr LLP, the person said.
Greg Smith, a spokesman at Energy XXI, and Nathaniel Garnick, a spokesman for Hutchin Hill at Sard Verbinnen & Co., declined to comment. Lauren Bishop, a spokeswoman for WilmerHale, didn’t respond to phone and e-mail messages seeking comment.
The company’s $750 million of unsecured debt due in December 2017 dropped 4.75 cents to 31.25 cents on the dollar at 10:43 a.m. in New York, Trace data show. The $510 million of unsecured bonds due in February 2018 dropped to 39.3 cents. Both were trading above par less than a year ago.
Energy XXI, which hasn’t posted a profit since the first quarter of last year, is among a slew of oil and gas companies that are facing a lending squeeze as crude trades around a six-year low. At the rate of spending and income that the company reported in the year through March, it would burn through its remaining cash a few months before the first of the two issues involved in the negotiations matures, Bloomberg data show.
The Houston-based driller said in a February regulatory filing that it appointed James LaChance as its interim chief strategic officer. His role is to negotiate issues with lenders and noteholders that include how to improve the company’s access to capital and its maturity schedule.
The company sold $1.45 billion of second-lien bonds maturing March 2020 in March at a yield of 12 percent to compensate for a reduction in its credit line linked to the falling value of its energy assets. Those securities rose 1.63 cents to trade at 63 cents on the dollar to yield 25 percent at 9:09 a.m. in New York, Trace data show.
Energy XXI is scheduled to reset the value of its proved oil and gas reserves when it announces earnings for the year ended June 30. The value was at $5.95 billion a year ago, according to an August 2014 regulatory filing. The company’s asset-based credit line was reduced to $500 million in March and there was about $150 million outstanding at the end of that month, according to a May filing.
The energy company’s shares were down 3.6 percent at $1.71 at 11:05 a.m. in New Yok after closing at $1.79 Wednesday. They’ve lost 48 percent of their value this year.