Pacific E&P Reaches Restructuring Deal With Catalyst

  • Arrangement will reduce company's debt by about $5 billion
  • Catalyst will control almost 30 percent of reorganized firm

Pacific Exploration & Production Corp. said it has reached an agreement with Canada’s Catalyst Capital Group Inc. on a restructuring plan that is expected to reduce the Colombian oil company’s debt by about $5 billion.

Catalyst won out over five other bidders, Bogota-based Pacific said in a statement Tuesday. Restructuring will reduce debt, improve liquidity and better position the oil producer after a rout in crude prices, with operations set to continue without disruption throughout the restructuring, the company said. Trading in Pacific shares in Bogota and Toronto was halted.

Under the terms of the deal, Toronto-based Catalyst and the other creditors will provide $500 million in debtor-in-possession financing secured against the company’s assets, according to the statement. The $250 million provided by funding creditors will be converted into five-year notes, while Catalyst’s $250 million will be converted or exchanged for 16.8 percent of the common shares in the reorganized company.

“We are confident that the company will emerge from this process as a stronger entity, best-positioned to weather the current oil price environment and capitalize on opportunities once the market adjusts,” Pacific Chief Executive Officer Ronald Pantin said in the statement.

CCAA Filing

The plan will be supervised by a court in Canada, along with appropriate proceedings in Colombia and the U.S., Pacific said. The company anticipates it will file for protection under Canada’s Companies’ Creditors Arrangement Act by April 30, Pacific’s General Counsel Peter Volk said in a phone interview.

Upon completion of the transaction, Catalyst is expected to hold 29.3 percent of the reorganized company, while the funding creditors will hold 12.5 percent. Pacific’s $4.1 billion in unsecured debt, $1.2 billion in obligations on its credit facilities and other unsecured claims by creditors will be wiped out and exchanged for a 58.2 percent stake in the reorganized company.

Management “extracted as much value out of the company as possible and drove it to zero,” Paradigm Capital analyst Ian Macqueen, who has advised clients to short the stock, said by phone. “This was not the result of the decrease in oil prices.”

Pacific’s existing shares will be canceled or subject to extensive dilution, the company said in the statement. They were worth 64 Canadian cents in Toronto before trading was halted on Tuesday, down from a high of C$34.81 in November 2010.

Interest Payments

The agreement is subject to a no-shop clause for as many as 12 weeks and is expected to be completed by the end of the third quarter. Under the terms of the deal, Pacific would have to pay a break fee equal to 5 percent of the debtor-in-possession financing.

"We understand the importance of Pacific to the countries in which it operates, including Colombia and Peru, and we are eager to work with Pacific’s local and international stakeholders to complete this restructuring with a view to establishing a stronger, long-term focused and soundly recapitalized company," Gabriel de Alba, managing director and partner of Catalyst, said in the statement.

Pacific failed to make bond interest payments in January and March and has struggled after a series of deals in recent years ballooned the company’s debt before oil prices plunged. The company received a number of restructuring proposals, including from Alfa SAB, EIG Global Energy Partners, and Gran Tierra Energy Inc, according to people with knowledge of the matter.

Competing Bids

Once the restructuring is completed, Pacific will implement a new management incentive plan on terms to be determined by the new board, potentially issuing up to 10 percent of its equity over a three-year period, Pacific said.

The Catalyst bid appears to offer less to the company’s creditors, banks, new money creditors than the final bids from EIG and Alfa, according to a breakdown of the bids circulated among the banks that was obtained by Bloomberg. The Catalyst offer also injects less cash into the business than EIG’s, the figures show.

Creditors, banks and new money creditors were to receive $1.1 billion under the EIG plan, $909 million under the Alfa bid, and $854 million under the Catalyst offer. The Alfa and Catalyst bids both contemplated a total cash injection of $500 million while EIG’s injected $570 million into the company, the figures show.

“Creditors made a decision that involved various factors that included execution risk, business plans and strength of the counter-party,” Volk said.

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