An ad-hoc group of EXCO Resources unsecured bondholders is working with Brown Rudnick as legal advisor to assist with restructuring negotiations, said two sources familiar with the situation.
The company warned recently that it could file for Chapter 11 given that it won’t have enough liquidity to address its USD 131.5m 7.5% senior unsecured notes that mature in September 2018, and might not be able to make an interest payment on its first lien debt in December. Besides the 7.5% notes, the company’s unsecured debt also includes a USD 70m 8.5% unsecured note due April 2022.
The unsecured notes trade at deeply distressed levels as some investors peg the company’s roughly USD 938m first lien debt as the fulcrum security, said two sources. The 8.5% notes last traded at 16.3 today, while the 7.5% notes traded in odd lots today at 15, according to MarketAxess. EXCO equity traded at USD 1.32 today down 1.12% for a market capitalization of USD 28.6m.
The company confirmed recently that it is working with Kirkland & Ellis, PJT and Alvarez & Marsal as advisors to address its capital structure amid the drop in oil prices which pressured its earnings and stock price. The steep share price decline is an impediment to the company paying interest on its loan by issuing shares without triggering a change of control.
Three prominent investors including Oaktree, Fairfax and Bluescape control more than two-thirds of the secured debt. The contingent is expected to drive restructuring negations for a plan of reorganization. The company issued in mid-March a USD 300m 1.5 lien payment-in-kind (PIK) note due 2022 that took out its covenant-laden revolver and also USD 683m of 1.75 lien PIK term loans due 2022 in exchange for a second lien term loan due 2020.
EXCO had USD 170m of liquidity as of 30 June comprising USD 31m cash and USD 138m available under its USD 150m revolver after accounting for USD 12m letters of credit. The company drew down the remaining USD 88m under its revolving facility on 7 September. The company had USD 145m of cash at the beginning of this month, according to a company press release.
Calls to EXCO and Brown Rudnick were not returned.