Lightstream Seeks Creditor Protection After Debt Deal Fails

  • Oil producer files under Companies’ Creditors Arrangement Act
  • Unsecured bondholders had opposed debt-for-equity swap

Lightstream Resources Ltd. is seeking court protection from creditors after failing to win enough support for a restructuring plan meant to cut debt at the Canadian oil driller by $904 million.

The company plans to make a court filing under Canada’s Companies’ Creditors Arrangement Act on Sept. 26, Calgary-based Lightstream said Monday in a statement. The filing had been contemplated as an alternative to a proposal made in July to hand control of the recapitalized company to its highest-ranked bondholders. Unsecured lenders and shareholders would have received small stakes.

Hedge fund Mudrick Capital Management LP, an unsecured noteholder, opposed the swap because it would have awarded equity to existing shareholders. Mudrick also said a previous restructuring had bumped the fund down the capital structure, depriving it of a larger stake in the company under the July plan.

Mudrick and FrontFour Capital Group LLC sued Lightstream after a 2015 debt swap gave a higher claim on the producer’s assets to distressed-debt investors Apollo Global Management LLC and Blackstone Group LP’s GSO Capital. The hedge funds said they shouldn’t have been left out of that deal.

Because the CCAA process is run by a court-appointed monitor, Lightstream will lose control over the restructuring. Company advisers have been soliciting bids for its assets to set up for a potential CCAA case.

Secured noteholders GSO and Apollo are prepared to make a credit bid for Lightstream, according to a person with knowledge of the process, who asked not to be identified because the matter is private. Paula Chirhart at GSO declined to comment, while Charles Zehren for Apollo didn’t immediately respond to requests seeking comment.

Lightstream said Monday it expects the court will approve the continuation of the sales process, which may include a credit bid by secured noteholders, who weren’t identified in the statement. The oil producer said another transaction acceptable to the company and an ad hoc group of the secured lenders was also an option. In a credit bid, a creditor is allowed to submit bids based on the amount of debt it’s owed.

Mudrick has said that under the CCAA, the court will have to consider its litigation, which is still pending, before deciding on a path forward for Lightstream. 

Lightstream will not be holding its annual meeting that was scheduled for Sept. 30 as a result of the CCAA process, according to the statement, and expects trading of its shares will be suspended indefinitely, while the Toronto Stock Exchange will begin a review to delist them.

Oil companies struggling to make interest payments are being forced to restructure or liquidate as the energy market’s downturn enters its third year. Bankruptcies among producers in the U.S. have been “catastrophic” for creditors, who in 2015 recovered an average of 21 percent of what they lent 15 companies, compared with about 59 percent in past decades, Moody’s Investors Service said this month in a report.

— With assistance by Nabila Ahmed

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