Energy XXI skips interest due on 8¼% notes, faces possible put option under 3% convertibles

By Susanna Moon

Chicago, Feb. 16 – Energy XXI said it decided to forgo paying interest due Tuesday on EPL Oil and Gas, Inc.’s 8¼% senior notes due 2018 in an effort to preserve liquidity while cutting leverage.

Meanwhile, the company also faces the risk of having its low stock price trigger a put option under its $400 million principal amount of 3% senior convertible notes due 2018, according to a 10-Q filing for the quarter ended Dec. 31 with the Securities and Exchange Commission.

Without a “material improvement in oil and gas prices or a refinancing or some restructuring of our debt obligations or other improvement in liquidity, we may seek bankruptcy protection to continue our efforts to restructure our business and capital structure and may have to liquidate our assets,” the company noted.

The company noted that beginning Jan. 11, the company’s common stock has been “generally” trading on Nasdaq at less than $1.00 per share. If the company’s stock falls below the minimum bid price of $1.00 per share for 30 consecutive business days, Nasdaq will issue a compliance period of 180 calendar days to regain the listing requirements.

If the company’s stock is delisted, it could constitute a fundamental change under the terms of the 3% convertibles, which would allow holders to put the notes at par plus accrued interest to but excluding the fundamental change repurchase date.

The company said it cannot assure that it would have the liquidity to fund the repurchase “given the severe liquidity constraints of the company.” The acceleration would cause a cross-default or cross-acceleration of all of the company’s other outstanding debt, which “could have a wider impact on our liquidity than might otherwise arise from a default or acceleration of a single debt instrument.” If that happens, the company said it would lack the liquidity to repay its outstanding debt.

Likewise, if Energy XXI fails to pay interest due on its 8¼% notes during the 30-day grace period, it would constitute an event of default and holders could accelerate amounts due under the notes, and it could also result in default and acceleration under other debt instruments, according to an earnings release for the fiscal 2016 second quarter ended Dec. 31.

The company said it has hired PJT Partners LP as its financial adviser and Vinson & Elkins LLP as its legal adviser.

The company said it has “ample” cash to make the payment due on its 8¼% notes but decided to hold discussions with its debtholders “related to alternatives to improve the company’s long-term capital structure.”

Energy XXI said it expects operations to continue as usual during discussions with noteholders.

“Our priorities during this period of challenging commodity prices are two-fold,” Energy XXI’s president and chief executive officer John Schiller said in the release.

“We are managing operations to be efficient through a disciplined capital program while also advancing our deleveraging plan.”

Energy XXI is an independent oil and natural gas development and production company based in Houston.

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