Stone Energy restructuring talks continue; terms of proposal outlined

By Caroline Salls

Pittsburgh, Aug. 23 – Stone Energy Corp. held negotiations with a group of holders of its 1¾% senior convertible notes due 2017 and 7½% senior notes due 2022 regarding a potential recapitalization and restructuring transaction, according to an 8-K filed Tuesday with the Securities and Exchange Commission.

The company said it provided the informal noteholders’ group with a proposal on Aug. 8.

After that, the company and some of the noteholders made additional proposals, with the company’s most recent proposal coming on Aug. 21.

Proposal terms

Under the most recent proposal

• The restructuring would be implemented through an out-of-court transaction to the extent sufficient support and concessions can be obtained from banks, noteholders and equityholders, with an in-court pre-packaged bankruptcy filing in the alternative;

• To facilitate and subject to a consensual restructuring with the informal group, the company proposed to sell its Appalachia assets, with $150 million of net proceeds, provided that the sale price would be no less than $350 million, to be paid to the noteholders in cash as part of the overall consideration. If the company obtains net proceeds greater than $350 million, it would pay noteholders 60% of any net proceeds that are available in excess of that amount.

The remaining sale proceeds would be used to pay down bank debt and for general working capital needs.

The company said its business plan assumes a sale would be completed by the end of 2016 at a net purchase price of $350 million. As part of a market test of the Appalachia assets earlier this year, Stone said it received indications of interest in the range of $250 million to $400 million;

• Noteholders would receive a portion of the Appalachia sale proceeds, $225 million of second-lien take-back notes due May 2022 with a 7½% coupon, with a minimum of 3¾% to be paid in cash and the rest in cash or in kind at the company’s election.

The take-back notes would be redeemable by the company in years one through three for par plus accrued interest and make-whole payments, in years four and five for par plus accrued interest and three-quarters of the coupon and in year six at par plus accrued interest.

Existing noteholders would also receive 93% of the common equity of the reorganized company, subject to dilution by warrants, a management equity incentive plan and any future issuance of equity;

• Other unsecured creditors may share in an allocation of common equity;

• Existing equityholders would receive 7% of the common equity of the reorganized company and five-year warrants for 16% of the common equity with a strike price equal to a total equity value of the reorganized company that results in full payment of the principal amount of the convertibles and notes plus accrued interest through the closing date of the restructuring; and

• A restructuring support agreement would provide for implementation of a management equity incentive plan.

Negotiations ongoing

Although a non-disclosure agreement with one group member has terminated, Stone said negotiations with the remaining members of the informal group are ongoing.

The company said it continues to analyze various strategic alternatives to address its liquidity and capital structure, including strategic and refinancing alternatives, asset sales and a Chapter 11 bankruptcy proceeding.

Stone Energy is a Lafayette, La., oil and gas exploration and production company.

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