Lightstream Resources Plans New Debt Swap to Stay in Business

  • Oil producer would give most of equity to secured noteholders
  • Court grants order for creditor protection as talks continue

Top-ranked bondholders of Lightstream Resources Ltd. could take control of the struggling Canadian energy company under a proposed debt-for-equity swap, dealing another blow to creditors left out of a previous rescue plan.

The oil producer, facing a July 15 deadline to make an interest payment, tentatively agreed to give secured noteholders a 95 percent equity stake, according to a statement. The deal includes forbearance on Lightstream’s overdrawn revolving credit line while the company works out a plan to stay in business, according to the statement. If that doesn’t work, Lightstream said it hired TD Securities Inc. to sell the business or its assets.

Lightstream is struggling to stay afloat amid a two-year crude market rout that has driven 85 North American oil and gas producers into bankruptcy since the beginning of 2015, according to Haynes & Boone LLP. Calgary-based Lightstream was sued over a debt exchange last year that gave funds run by Apollo Global Management LLC and Blackstone Group LP’s GSO Capital Management second-lien claims on assets, pushing earlier debt investors further back in the line for a payout in a restructuring.

Who Gets What

The proposed agreement was reached with a committee representing 91.5 percent of the 9.875 percent second-lien secured notes maturing in 2019, Lightstream said. The restructuring would cut debt by $904 million and reduce interest payments by more than $86.1 million a year, the company said.

Unsecured noteholders would be left with a 2.75 percent stake and warrants equal to 5 percent of the shares. Existing shareholders would get 2.25 percent plus warrants equal to a 7.75 percent stake. The revolving credit facility would be replaced with a new one.

The recapitalization plan follows last month’s deferral by Lightstream of a $32.1 million interest payment, which triggered a 30-day grace period.

Backup Plan

Lightstream plans to restructure through the Canada Business Corporations Act and said in a second statement Wednesday that it received court approval for creditor protection while it continues talks to finalize the proposal by Aug. 5. If the effort isn’t successful, the secured noteholders plan to put in a bid for the company, according to the earlier statement.

Mudrick Capital Management LP and FrontFour Capital Group LLC sued last year after the earlier debt swap, alleging they lost money when the company left them out of the deal. The statement didn’t say whether unsecured holders have agreed to the new deal.

Spokesmen for Lightstream and the investors either declined to comment or didn’t immediately respond to inquiries.

Lightstream’s 8.625 percent unsecured notes due in 2020 traded at 7.125 cents on the dollar on June 27. The shares, which sold for more than C$17 in 2012, traded at 18 cents at 12:19 p.m. Lightstream’s market capitalization has fallen to C$35.7 million from a peak of C$5.84 billion on Jan. 7, 2010.

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