"EXCO Resources Announces a Series of Transactions That Enhance Liquidity, Reduce Debt and Provide Credit Agreement Covenant Flexibility" $XCO

Earlier this week:

EXCO has executed an agreement with subsidiaries of Fairfax Financial Holdings Limited (“Fairfax”) to provide a $300 million Senior Secured Second Lien Term Loan (the “Fairfax Term Loan”). The Fairfax Term Loan will be issued at par, bears interest at a rate of 12.50% per annum and has a five-year maturity. The Company will use the net proceeds of the Fairfax Term Loan to repay a portion of the borrowings under the Company’s Amended and Restated Credit Agreement (the “Credit Agreement”).

EXCO has also entered into agreements with certain unsecured noteholders (the “Noteholders”) pursuant to which the Noteholders have agreed to become lenders under a new $291 million Senior Secured Second Lien Term Loan (the “Exchange Term Loan”) in exchange for the Company repurchasing $577 million of the Noteholders’ senior unsecured notes at an average price of 51% of principal amount. The Exchange Term Loan will be issued at par, bears interest at a rate of 12.50% per annum and has a five-year maturity. EXCO will repurchase approximately $376 million of its 7.50% Senior Unsecured Notes due 2018 (50% of the $750 million outstanding) and approximately $201 million of its 8.50% Senior Unsecured Notes due 2022 (40% of the $500 million outstanding). EXCO has granted Fairfax and the Exchange Term Loan lenders a pari-passu second lien security interest in the same assets.

In connection with the foregoing transactions, EXCO entered into an amendment (the “Amendment”) to its Credit Agreement which reduced the borrowing base to $375 million and provided further covenant flexibility. Among other things, the interest coverage ratio has been reduced to 1.25 times from 2.0 times previously, and the total leverage ratio has been removed entirely. The next borrowing base redetermination is currently scheduled for March 2016.

It's amazing that bondholders have been willing to take huge haircuts to principal without getting any equity upside.

The XCO 2018 note is now trading at about 33 (ytm 57%) and the 2022 note is trading at about 25 (ytm 45%). You can see that the yield curve is inverted. It also appears as though perhaps noteholders weren't interested in equity upside; they just wanted second lien coverage even at the cost of a big discount to principal (although the higher coupon offsets somewhat).