Twin Butte Weighs Options as Lenders Give Daily Extensions

  • Company seen by Canaccord close to takeover or restructuring
  • Energy lenders post losses as producers cope with price crash

In a sign of the scramble it’s become to secure financing in Canada’s energy patch, lenders are revising one company’s debt repayment deadline daily.

For the third straight day, Twin Butte Energy Ltd.’s bankers on Thursday agreed to extend the deadline to repay a C$85 million ($65 million) loan and ability to access its C$140 million existing revolving credit line, the company said in a statement. The move allows the Calgary-based company to continue weighing “strategic alternatives” including debt restructuring, a sale of all or part of the company or other financing. After twice extending the deadlines by 24 hours, on Thursday the lenders gave Twin Butte five days, until June 7.

The short-term extensions come as banks post rising losses tied to energy loans while producers cope with the worst oil market downturn in a generation. Twin Butte’s banks had previously pushed out the maturity date on the loan by a month to May 31.

Twin Butte’s effort to stave off default follows companies like Penn West Petroleum Ltd., which warned it may not survive if it can’t negotiate new borrowing limits by the end of the second quarter, and Lightstream Resources Ltd., which announced May 2 it has 90 days to shore up a credit facility to avoid default. Tervita Corp. exercised a 30-day grace period on an interest payment to negotiate with its lenders.

‘New Territory’

Twin Butte’s day-to-day extensions signal the company may have found a buyer or is near a formal restructuring under the Companies’ Creditors Arrangement Act, according to Canaccord Genuity Corp. The company said in December that it had started a strategic review and was looking at options including debt restructuring, asset sales, sale of the company, a merger or other actions.

“This is new territory,” Dennis Fong, an analyst at Canaccord in Calgary, said Thursday in a phone interview. “It could be that there’s a buyer that will clean up the balance sheet or take out the entire company, or the bank believes the process is getting long in the tooth and wants to pull the trigger on a restructuring.”

Rob Wollmann, chief executive officer of Twin Butte, declined to comment Thursday when reached by phone.

Connacher Oil and Gas Ltd., another struggling oil producer in Calgary, filed for creditor protection on May 16. The company was in discussion with lenders and was sued by Credit Suisse Group AG in New York over claims it defaulted on a term loan in February.

Production Costs

Twin Butte, which was in the process of lowering its production costs when crude prices dropped in 2014, isn’t generating enough cash to meet debt obligations, Fong said. The company needs U.S. crude above $37 a barrel to cover costs and begin repaying debt, according to Canaccord estimates.

West Texas Intermediate, the benchmark U.S. crude, has averaged about $38 a barrel this year, but has recently traded near $50 as analysts, investors and industry leaders expect supplies to come into balance.

The company’s net debt was C$294 million at the end of the first quarter, according to its report to shareholders. Twin Butte saw its revolving credit facility reduced to C$140 million from C$275 million in January. Its infrequently traded convertible debenture has been priced as low as 8.66 cents on the dollar this week, according to data compiled by Bloomberg. It rose to 17 cents on Thursday.

Shares have fallen 95 percent since the U.S. crude prices peaked in mid-2014 and closed Thursday at 10 cents in Toronto.

The best scenario for Twin Butte and its lenders would be to find a buyer before a formal restructuring when the company’s assets would be worth less, Fong said.

“Putting this to bed at some point in time is in people’s interest right now, because of the troublesome environment we’ve been through over the last year-and-a-half,” Fong said.

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