Thursday, September 7, 2017

"EXCO Resources, Inc. Borrows Remaining Undrawn Amount of Its Amended and Restated Credit Agreement" $XCO

"The Company, at the direction of the Audit Committee, has retained PJT Partners LP as financial advisors and Alvarez & Marsal North America, LLC as restructuring advisors."

6 comments:

Anonymous said...

The XCO 7.5% note due Sept 2018 trading at 25 cents, a current yield of 30% and a YTM of 200+%.

The 8.5% note due Apr 2022 trading at 19 cents, a current yield of 44% and a YTM of ~65%.

Aso of June 30, 2017 the Company had $9.4 million of cash, $107 million of current assets, and $245 million of current liabilities.

Shareholder equity is negative $904 million.

Anonymous said...

These unaudited Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business. Our liquidity and ability to maintain compliance with debt covenants have been negatively impacted by the prolonged depressed oil and natural gas price environment, levels of indebtedness, and gathering, transportation and certain other commercial contracts. We define liquidity as cash and restricted cash plus the unused borrowing base under our credit agreement ("Liquidity").

On March 15, 2017, we closed a series of transactions including the issuance of $300.0 million in aggregate principal amount of senior secured 1.5 lien notes due March 20, 2022 ("1.5 Lien Notes"), the exchange of $682.8 million in aggregate principal amount of our senior secured second lien term loans due October 26, 2020 ("Second Lien Term Loans") for a like amount of senior 1.75 lien term loans due October 26, 2020 ("1.75 Lien Term Loans," and such exchange, the "Second Lien Term Loan Exchange") and the issuance of warrants to purchase our common shares. Under the terms of the indenture governing the 1.5 Lien Notes and the credit agreement governing the 1.75 Lien Term Loans, we may, at our discretion prior to December 31, 2018 and subject to certain limitations, make interest payments in cash, common shares or additional indebtedness (such interest payments in common shares or additional indebtedness, "PIK Payments"). See further discussion of these transactions as part of "Note 8. Debt".

On April 7, 2017, we entered into an agreement to divest our oil and natural gas properties and surface acreage in South Texas, and the transaction was originally expected to close on June 1, 2017. As discussed in detail in "Note 3. Acquisitions, divestitures and other significant events", we entered into an amendment to the agreement that extended the closing date to August 15, 2017, subject to EXCO satisfying certain closing conditions. As of August 8, 2017, these conditions have not been satisfied. No assurance can be given as to outcome or timing of the divestiture. Our current borrowing base under our revolving credit agreement ("EXCO Resources Credit Agreement") is $150.0 million. If we successfully close the South Texas divestiture, the borrowing base will be reduced to $100.0 million, including letters of credit.

On May 31, 2017, our shareholders approved a proposal to (i) permit the issuance of common shares to pay interest on the 1.5 Lien Notes and 1.75 Lien Term Loans and permit the issuance of common shares upon the exercise of the warrants associated with the 1.5 Lien Notes and 1.75 Lien Term Loans, in each case for purposes of New York Stock Exchange rules, and (ii) enable a reverse share split. On June 20, 2017, we paid interest on the 1.75 Lien Term Loans in common shares, which resulted in the issuance of 2,745,754 common shares ("PIK Shares") in lieu of an approximate $23.0 million cash interest payment under the 1.75 Lien Term Loans. It is currently unclear how many common shares will be issued in the future as a result of the payment-in-kind feature, the amount of which will substantially depend on prevailing market conditions, Liquidity and the price of our common shares. Furthermore, our ability to pay interest in common shares or additional indebtedness is subject to certain restrictions.

Anonymous said...

Our Liquidity is currently significantly constrained. The principal purpose of offering the 1.5 Lien Notes, Second Lien Term Loan Exchange and entering into an agreement to divest our properties in South Texas was to alleviate the substantial cash interest payment burden and improve our Liquidity. Our initial expectation was to make PIK Payments in common shares on the 1.5 Lien Notes and the 1.75 Lien Term Loans throughout the remainder of 2017 and 2018. However, due to the reasons discussed below, our ability to make PIK payments in common shares will be significantly limited, and we will be required to pay a portion or all of our interest in cash or additional indebtedness during this period.

Our common share price has and continues to be volatile and has significantly decreased from March 31, 2017. Under the terms of the indenture governing the 1.5 Lien Notes and the credit agreement governing the 1.75 Lien Term Loans, we cannot issue common shares as PIK Payments if it would result in a beneficial owner, directly or indirectly, owning more than 50% of the outstanding common shares. If our common share price remains at the current levels or continues to decrease, we will have to issue a greater number of common shares to make PIK Payments on the 1.5 Lien Notes and 1.75 Lien Term Loans. This could prevent us from paying interest in common shares in 2017 and 2018, as initially anticipated, because doing so could result in certain holders owning more than 50% of our outstanding common shares. If we experience certain events deemed to be a change of control, as defined in the respective agreements, we may be required to offer to repurchase or repay all or a portion of our existing indebtedness, including our senior unsecured notes due September 15, 2018 ("2018 Notes"), senior unsecured notes due April 15, 2022 ("2022 Notes"), 1.5 Lien Notes and 1.75 Lien Term Loans. If this occurs and our indebtedness is accelerated and becomes immediately due and payable, our Liquidity would not be sufficient to pay such indebtedness. In addition, under the Registration Rights Agreement dated as of March 15, 2017 by and among the Company and the 1.5 Lien Notes and 1.75 Lien Term Loan investors ("Registration Rights Agreement"), our ability to make PIK Payments in common shares is subject to our Resale Registration Statement (as defined in the indenture governing the 1.5 Lien Notes or the credit agreement governing the 1.75 Lien Term Loans, as applicable) being declared effective by the SEC by October 11, 2017. The Resale Registration Statement has not been declared effective as of August 8, 2017, and there is no assurance we will be able to satisfy this condition. Even if we are able to make PIK Payments in common shares in future periods, we may elect not to because such issuances would contribute to an ownership change under Section 382 of the Internal Revenue Code that could limit our ability to use our net operating loss carryovers (“NOLs”) to reduce future taxable income. As of June 30, 2017, we had estimated NOLs of $2.3 billion.

The amount of PIK Payments made in additional 1.5 Lien Notes or 1.75 Lien Term Loans is subject to incurrence covenants within our debt agreements that limit our aggregate secured indebtedness to $1.2 billion. As of June 30, 2017, our secured indebtedness was $1.15 billion; therefore, our ability to make PIK Payments in additional indebtedness would be limited to $50.0 million. This amount will be reduced dollar-for-dollar to the extent that we incur any additional secured indebtedness, including PIK Payments in additional indebtedness.

Anonymous said...

Based on our estimates, the limitations on our ability to make interest payments on the 1.5 Lien Notes and 1.75 Lien Term Loans in our common shares will require us to pay a portion or all of the interest in cash or additional indebtedness during the remainder of 2017 and 2018. If we pay a significant portion of the interest on the 1.5 Lien Notes or 1.75 Lien Term Loans in cash for the September 20, 2017 or December 20, 2017 interest payment dates, then we are not expected to comply with a covenant in the EXCO Resources Credit Agreement that requires our ratio of consolidated EBITDAX to consolidated interest expense ("Interest Coverage Ratio") to exceed a minimum of 1.75 to 1.0 for the fiscal quarter ending September 30, 2017 and 2.0 to 1.0 for fiscal quarters thereafter. The definition of consolidated interest expense utilized in the Interest Coverage Ratio excludes PIK Payments on the 1.5 Lien Notes and 1.75 Lien Term Loans. The consolidated EBITDAX and consolidated interest expense utilized in this calculation are annualized beginning with the fiscal quarter ending September 30, 2017. Therefore, the ability to make interest payments in common shares is essential to maintain compliance with the Interest Coverage Ratio.

The EXCO Resources Credit Agreement also requires that our cash (as defined in the agreement) plus unused commitments under the EXCO Resources Credit Agreement cannot be less than (i) $50.0 million as of the end of a fiscal month and (ii) $70.0 million as of the end of a fiscal quarter ("Minimum Liquidity Test") and that our ratio of aggregate revolving credit exposure to consolidated EBITDAX ("Aggregate Revolving Credit Exposure Ratio") cannot exceed 1.2 to 1.0 as of the end of any fiscal quarter. If we are not able to close the South Texas divestiture or make interest payments in common shares, it is probable that we will not meet the minimum requirement under the Minimum Liquidity Test and the Aggregate Revolving Credit Exposure Ratio for the twelve-month period following the date of these unaudited Condensed Consolidated Financial Statements, and could be in default under either of these covenants as early as of the end of the third quarter of 2017. Our borrowing base could be further reduced by the lenders at the next redetermination date which is scheduled to occur on or around November 1, 2017. In addition, if we are not deemed to be solvent, as defined in the EXCO Resources Credit Agreement, our ability to borrow under the EXCO Resources Credit Agreement will be prohibited.
We borrowed an aggregate of $50.0 million under the EXCO Resources Credit Agreement subsequent to June 30, 2017 to fund the acquisition of certain oil and natural gas properties and undeveloped acreage in the North Louisiana region and to fund other working capital needs. Our capital expenditures are expected to exceed our operating cash flows for the remainder of 2017 and the deficit is expected to be funded with borrowings under the EXCO Resources Credit Agreement or asset sales, if any.

Anonymous said...

The maturity date of the EXCO Resources Credit Agreement is July 31, 2018, and our 2018 Notes are due September 15, 2018. There is no assurance that the maturity date of the EXCO Resources Credit Agreement will be extended or that we will be able to refinance the debt outstanding under the EXCO Resources Credit Agreement on terms that are satisfactory to us, or at all. If we repay the 2018 Notes in full in cash at maturity in September 2018, there will be an event of default under the indenture governing the 1.5 Lien Notes and 1.75 Lien Term Loans, which would result in an event of default under all of our other debt agreements. The covenants in the EXCO Resources Credit Agreement limit cash paid for repurchases, exchanges, redemptions or acquisitions of the 2018 Notes and 2022 Notes to $75.0 million; provided further that we shall have, after giving pro forma effect to any such transaction, unused commitments under the EXCO Resources Credit Agreement plus unrestricted cash equal to or greater than $100.0 million. The covenants in the 1.5 Lien Notes and 1.75 Lien Term Loans limit cash paid for repurchases, exchanges, redemptions or acquisitions of the 2018 Notes and 2022 Notes not to exceed $25.0 million. However we may repurchase, exchange, redeem or acquire an additional 2018 Notes and 2022 Notes for an amount not to exceed an additional $70.0 million, thereafter; provided further that we shall have liquidity (as defined in the agreement) of at least $200.0 million.

Our Liquidity is not expected to be sufficient to support the cash interest payments due under our outstanding indebtedness for the twelve-month period following the date of these unaudited Condensed Consolidated Financial Statements or to repay the outstanding indebtedness due in 2018. If we cannot make scheduled cash payments on our debt, we will be in default and holders of our outstanding notes and loans could declare all outstanding principal and interest to be due and payable, the lenders under the EXCO Resources Credit Agreement could terminate their commitments to loan money, and our secured lenders could foreclose against the assets securing their borrowings. Any event of default may cause a default or accelerate our obligations with respect to unsecured indebtedness, including our 2018 Notes and 2022 Notes, which could adversely affect our business, financial condition and results of operations. These factors raise substantial doubt about our ability to continue as a going concern.

In addition, our Liquidity and compliance with debt covenants may be impacted by the outcome of certain litigation and the potential closing of the divestiture of our South Texas properties. As described in "Item 3. Legal Proceedings" in our 2016 Form 10-K, we are currently in litigation with Enterprise Products Operating LLC ("Enterprise") and Acadian Gas Pipeline System ("Acadian") in which Enterprise and Acadian filed a suit claiming that we improperly terminated the sales and transportation contracts. If we are unable to satisfactorily resolve our litigation with Enterprise and Acadian and we are required to pay a judgment, any such payment could adversely affect our ability to pay principal of and interest on our outstanding debt.

Anonymous said...

If we are not able to complete the divestiture of our South Texas properties as described in “Note 3. Acquisitions, divestitures and other significant events”, this will accelerate our Liquidity concerns because we anticipate using most of the net proceeds to acquire and develop our oil and gas properties and fund our capital expenditures, which will permit us to use our remaining Liquidity to make cash interest and principal payments on our outstanding debt. Under our debt agreements, we are permitted to permanently prepay certain senior secured debt or make an asset sale offer with respect to the 1.5 Lien Notes or reinvest the proceeds in oil and gas properties or make capital expenditures. The intent and ability of the buyer to consummate the transaction was deemed to be outside of our control in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 205-40, Going Concern. Therefore, the divestiture was not factored into our analysis regarding our ability to continue as a going concern as of the date of these unaudited Condensed Consolidated Financial Statements. However, the closing of the divestiture of our South Texas properties is not expected to alleviate the substantial doubt about our ability to continue as a going concern.

If we deliver to our lenders an audit report prepared by our auditors with respect to the financial statements for the fiscal year ended December 31, 2017 that includes an explanatory paragraph expressing uncertainty as to our ability to continue as a going concern, then it will be an event of default under each of the EXCO Resources Credit Agreement, 1.5 Lien Notes and 1.75 Lien Term Loans. These defaults would result in a default under the indentures governing our 2018 Notes and our 2022 Notes. As of the date of the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q, our management has determined that there are a number of factors that continue to raise substantial doubt about our ability to continue as a going concern. We may not be able to eliminate the substantial doubt concerning our ability to continue as a going concern or obtain waivers with respect to this obligation from our lenders. If the substantial doubt about our ability to continue as a going concern still exists at the date we deliver our financial statements for the fiscal year ended December 31, 2017, we would experience an event of default under such agreements.

If we are unable to restructure our current obligations under our existing outstanding debt and address near-term liquidity needs, we may need to seek relief under the U.S. Bankruptcy Code. This may include: (i) pursuing a plan of reorganization; (ii) seeking bankruptcy court approval for the sale or sales of some, most or substantially all of our assets and a subsequent liquidation of the remaining assets in the bankruptcy case; or (iii) seeking another form of bankruptcy relief, all of which involve uncertainties, potential delays and litigation risks. In addition, our creditors may file an involuntary petition for bankruptcy against us. In any bankruptcy proceeding, holders of our common shares may receive little or no consideration.