Mudrick Among Creditors Fighting Lightstream Debt Swap Deal

Updated on
  • Hedge fund FrontFour also said to be opposed to the plan
  • Restructure proposal requires suppport of all creditors

Two of Lightstream Resources Ltd.’s unsecured bondholders are vowing to fight a debt-for-equity swap proposed by the Canadian oil producer, jeopardizing the company’s plan to stay afloat by cutting debt by $904 million.

Mudrick Capital Management, a New York-based investment manager that owns almost a third of the company’s unsecured bonds, is opposed to the plan, Chief Executive Officer Jason Mudrick said. FrontFour Capital Group of Greenwich, Connecticut, another unsecured creditor, is also against the debt swap, said a person with knowledge of the transaction, asking not to be identified because the matter is private.

“We told the company we would not be supportive of this,” Mudrick said in a telephone interview Wednesday. “We have approximately 31 percent of the unsecured bonds, and as a result they can’t do a consensual transaction without us.”

A representative of FrontFour declined to comment. Lightstream didn’t immediately return telephone and e-mail messages seeking comment.

The pushback from the investors threatens Lightstream’s plan, which would hand control of the company to top-ranked bondholders in a restructuring that requires approval from all creditors through the Canada Business Corporations Act. The oil producer was facing a July 15 deadline to make a $32.1 million interest payment and has struggled to stay afloat amid a two-year crude market rout.

Lightstream’s total debt was C$1.51 billion ($1.16 billion) at the end of the first quarter, according to data compiled by Bloomberg. The company’s market capitalization on Wednesday, after its shares fell 10 percent, was C$35.7 million.

Without an agreement, Lightstream appears headed for a Companies’ Creditors Arrangement Act sales process, Mudrick said.

The Calgary-based producer was sued last year by Mudrick and FrontFour over a debt exchange that gave funds run by Apollo Global Management LLC and Blackstone Group LP’s GSO Capital Management second-lien claims on its assets, pushing investors including Mudrick and FrontFour further back in the line for a payout in a restructuring. With the lawsuits ongoing, it’s impossible to agree on a restructuring, Mudrick said.

If the plan proceeds, unsecured noteholders would together be left with a 2.75 percent stake and warrants equal to 5 percent of the shares of Lightstream. Existing shareholders would get 2.25 percent plus warrants equal to a 7.75 percent stake. Secured noteholders would get a 95 percent equity stake.

“Have you ever seen a plan where more value is going to equity than bonds?” Mudrick said. “It’s ludicrous.”