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Drilling Down on Strategic Alternatives
in the Current Energy Crisis
Part I: The CFO's Dilemma - Proactive Next Steps April 1, 2015
WEBINAR SERIES
The CFO's Dilemma - Proactive Next Steps 2
Today’s Speakers
Trent Rosenthal (moderator)Restructuring & Bankruptcy Partner – Burleson LLP● Board Certified in Business Bankruptcy Law by the Texas Board of Legal Specialization● Over 3 decades experience in restructuring and bankruptcy law● Handled numerous oil & gas restructurings and workouts
James (“Jim”) C. Row, CFAManaging Director & Founder – OFSCap, LLC● Background in energy investment banking (international/domestic)● Securities and valuation expert● Former E&P operator and CFO
Allen ParksManaging Director – OFSCap, LLC● 18 years experience in contract drilling industry● 18 years experience in oilfield services investment banking
Douglas DraperRestructuring & Bankruptcy Attorney – Heller, Draper, Patrick, Horn & Dabney● Fellow American College of Bankruptcy Lawyers● Listed on Best Lawyers in America for the past 25 years● Ranked Tier 1 Bankruptcy Counsel in Chambers USA
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Housekeeping Items
• This Webinar is Being Recorded: A recording of today’s webinar will be emailed to
attendees after the webinar
• We Welcome Questions: Enter questions into the Questions Pane and we will
respond in the Q&A session at the end
• Think of Something Later?: Email [email protected]
DISCLAIMER: The viewing of online seminars and the use of the Internet for communications with Burleson LLP, Heller, Draper, Patrick Horn & Dabney, and OFSCap will not establish an attorney-client relationship and messages containing confidential or time-sensitive information should not be sent. In order to protect past, present or potential clients, we cannot treat unsolicited e-mails as confidences or secrets.
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Today’s Agenda/Toolbox
• Dealing with Loan Covenants• Waivers and Extensions• Debt to Equity Conversion• New Capital• M&A and Consolidations• Q&A Session
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Today’s Goals
• Provide a Toolbox of Practical Points for a CFO• Highlight Action Items to Select Set of Tasks or CFO
Responsibilities • Provide Thoughts and Draw Attention to Many
Critical Issues• Focus on “Lessons Learned” From Previous
Downturns• Briefly Address Various Financial Restructuring
Alternatives If A Company Can’t Avoid A Filing
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Dealing with Loan/Bond Covenants
• Proactive Communication: Be the “Good Actor”
• Function as Early Warning Sign to Lender• Financial, Informational, Ownership, Affirmative,
Negative or Positive in Nature• Violation May Result in Default on Loan or Bond,
Penalties Applied, or Loan Being “Called”• Hire Turn-Around Consultants and Counsel Who
Know Work-Out Concepts
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Covenants – CFO Strategies• Default
: Reserve Ratio (Valuation): Leverage Ratios: Cash Flow Covenants: Soft Technical Defaults
• Penalties: Default: Acceleration: Exercise of Remedies: Effect on Other Financing Arrangements
• Called: Prevention: Renegotiation / Withdrawn: Bank Bondholder Hesitancy to Call –
Ramifications
• Approvals/Best Practice Steps
: Banks – Loan Committee, Audit Committee, and Regulatory Approval
: Companies – Board Approval for Loan Modifications
: Seek Advice of Consultants and Counsel: Protection for Management: MSA’s as Leverage
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Loan vs. Bond Strategies
• Covenants: Maintenance vs. Financial: Negotiable vs. Not Negotiable
• Lenders: Known Group vs. Unknown Group
• Information Sharing: Restricted vs. Non-Restricted
• Credibility Under Scrutiny
Accurate Granular Forecast Critical
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Covenants – Bank or Bond Committee Position
• Perspective• Position• Systematic Pressures• Internal Pressures• Approvals• Regulatory Hurdles• Equity Players Purchasing Bonds at a Discount (i.e. Loan to
Own)• Know Who You Are Dealing With and What They Want –
Money, Stock, Assets, All of the Above?
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Waivers & Extensions
• Why – Waiving of Rights• Legal Effect/Ramifications
: Prevents Creditor From Taking Any Legal Action: Gives Company Breathing Room: Don’t Over Commit in Exchange For Waiver: Make Reasonable Offers For Waiver, Such As Bargain for Cooling-Off Period - Buy Time!
• Form and Substance: Sell the “Plan” and Benefits to Creditor: Look At It From Both Perspectives: Adviser and Legal Counsel Involvement in “Pitch” to Bondholders/Lenders
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Waivers & Extensions
• Loan vs. Bond Differences: Bonds Usually Have Indenture Trustees Looking Out For
Bondholders: Lenders have Loan and Credit Committees. Work-out
Officer (Advisors and Counsel) Must be Able to “Sell” Company’s Request to Bank Management
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Debt to Equity Conversions
• Lender Agrees to Process Converting All or a Portion of their Loan into Some Form of Equity to Restore Liquidity• Strategies
: Manageable Debt Level: Lender Sells Debt to Someone that Wants Equity in the
Company or Lender (non-bank) wants Equity
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New Capital
• Challenging• Acquisition Capital for the Weak• Is it Debt or Equity, or maybe “Debtequity”
: Mezzanine with Substantial Equity Components: 2nd Lien?: Available Unpledged Assets, ORRI’s, Production
Payments, Royalties: New Capital through Chapter 11 Process is Attractive
Option, such as Debtor-in-Possession Lending
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M&A and Consolidations
• Oilfield Services Will See Little New Capital Until Knife Hits the Floor or Bankruptcy
: More Prone to Distressed Outright Purchase or Combination
: Great Opportunities to Buy Valuable Assets from Distressed Companies
• New Capital Sources for E&P: Hedge Funds : E&P Advantage
• Funds Created to Make Money In This Market
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Wrap-Up and Call to Action
• Be Proactive and Responsive: Under-promise and Over-perform: Sell Your Capabilities and Plan: Give Creditors the Opportunity to Increase Recovery By
Working With You
• Over-Communicate• Hire Counsel and Financial Advisors Familiar With Work-
outs and Restructuring to Guide You Through Process• Involve Energy Lawyers that Know the Industry
: Fresh Face and Lightning Rod
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Q&A• Please Submit Questions via Questions Pane on
Your Screen• Please Be Patient As We Try to Answer All
Questions• Thank You For Attending!
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Join Us for Part II of Our Webinar Series
• Part II: Public Company Boards of Directors and Corporate Governance • Wednesday, April 22, 2015• 12:00-1:00 p.m. Central Time• Registration Link:
: https://attendee.gotowebinar.com/register/1951078251275250433
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Contact Information
Trent Rosenthal [Online Bio]Restructuring & Bankruptcy Partner – Burleson LLP Phone: 713.358.1724Email: [email protected]
James (“Jim”) C. Row, CFA [Online Bio]Managing Director & Founder – OFSCap, LLCPhone: 713.823.2900Email: [email protected]
Allen Parks [Online Bio]Managing Director – OFSCap, LLCPhone: 713.816.6848Email: [email protected]
Douglas Draper [Online Bio]Restructuring & Bankruptcy Attorney – Heller Draper, Patrick, Horn & Dabney, LLCPhone: 504.299.3333Email: [email protected]
