EXCO Resources, Inc. Files Voluntary Petitions for Chapter 11 Reorganization to Facilitate Financial Restructuring

EXCO Resources, Inc. (NYSE: XCO.BC) (OTC Pink: XCOO) ("EXCO" or the "Company") today announced that in order to facilitate a restructuring of its balance sheet, the Company and certain of its subsidiaries have filed voluntary petitions for a court-supervised reorganization under Chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (“the Court”). EXCO intends to operate in the ordinary course of business during the restructuring process.

EXCO continues to engage in constructive discussions with its creditor constituencies regarding the terms of a financial restructuring plan. In conjunction with this process, EXCO will explore potential strategic alternatives to maximize value for the benefit of its stakeholders, including the marketing of the Company’s assets, which may result in a sale of certain or substantially all of its assets under Section 363 of the Bankruptcy Code or as part of the plan of reorganization.

EXCO Resources, Inc. Enters into Forbearance Agreements $XCO

More action from one of the Distressed Debt Watch companies, XCO filing:

EXCO Resources, Inc. (XCO) ("EXCO" or the "Company") today announced that it has entered into forbearance agreements (the “Forbearance Agreements”) with the administrative agent and the majority of lenders under its reserve-based credit agreement (the “Credit Agreement”), holders of approximately 87% of the outstanding aggregate principal amount of its senior secured 1.5 lien notes due March 2022 (the “1.5 Lien Notes”) and lenders holding approximately 81% of its outstanding senior secured 1.75 lien term loans due October 2020 (“1.75 Lien Term Loans”) (collectively, the “Forbearing Creditors”).

Under the terms of the Forbearance Agreements, the Forbearing Creditors have agreed to forbear from exercising any and all remedies available to them under the Credit Agreement, the 1.5 Lien Notes and the 1.75 Lien Term Loans as a result of the Company not making the December 20, 2017 payment due under the 1.75 Lien Term Loan, as well as certain defaults arising as a result of the Company’s failure to meet affirmative covenants under its Credit Agreement as of December 31, 2017, among other things. The Forbearance Agreements will expire upon the earlier of 11:59 PM (Eastern Time) on January 15, 2018 or the occurrence of certain events specified in the Forbearance Agreements.

The Company also announced it has received a commitment for a $250 million debtor-in-possession financing in the event that the Company elects to pursue a filing of voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code.

Harold L. Hickey, EXCO’s Chief Executive Officer and President, said, “We are continuing to explore strategic alternatives to address our financial position and maximize the value of the Company. The Forbearance Agreements provide EXCO with additional time and flexibility as we continue our ongoing and constructive discussions with our stakeholders regarding the Company’s capital structure. We remain committed to acting in the best interest of our stakeholders and will continue to take actions to strengthen our financial position.”

As previously announced, EXCO's next quarterly interest payment of approximately $27 million, based on the paid in-kind interest rate of 15.0% on the 1.75 Lien Term Loans, was scheduled to occur on December 20, 2017, and was required to be paid in-kind pursuant to the terms of the indenture governing the 1.5 Lien Notes. The Company did not make the interest payment on the 1.75 Lien Term Loans on December 20, 2017.

The Company, together with the Audit Committee of the Board of Directors, is continuing to explore strategic alternatives to strengthen the Company's balance sheet and maximize the value of the Company, which may include seeking a comprehensive out-of-court restructuring or reorganization under Chapter 11 of the U.S. Bankruptcy Code. As previously announced, the Company has retained PJT Partners LP as financial advisor and Alvarez & Marsal North America, LLC as restructuring advisor. The Company continues to retain Kirkland & Ellis LLP as its legal advisor to assist the Audit Committee and management team with the strategic review process.

The 8-K filing has more details:

No decision by the Obligors to file a petition under Chapter 11 of the U.S. Bankruptcy Code has been made at this time. The Forbearance Agreements are intended to provide the Obligors an opportunity to negotiate a restructuring transaction and the debtor-in-possession financing commitment is intended to provide the Company with necessary liquidity should the Company file a Chapter 11 proceeding. The Company is negotiating the terms of a restructuring with the Forbearing Parties. Until any definitive agreements are negotiated in their entirety and executed, and the transactions contemplated thereby are consummated, there can be no assurance that any restructuring transaction will be completed by the end of the Forbearance Period or at all. The Company may file a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code if the Company is unable to negotiate and implement a restructuring before the end of the Forbearance Period or if any negotiated restructuring requires implementation through a Chapter 11 proceeding.

So, quite possibly a bankruptcy filing in the coming month.

Distressed Debt Watch

• Exco Resources (XCO, EDGAR) bond due Sept 2018 trading at 10 cents, YTM over 650%. 
• Cobalt International Energy (CIE, EDGAR) bond due Dec 2019 trading at 11 cents, YTM ~160%.
• Iconix Brand Group (ICON, EDGAR) bond due March 2018 trading at 85 cents, YTM of 63%.
• Bon Ton Stores (BONT, EDGAR) bond due June 2021 trading at 30 cents, YTM over 50%.
• Egalet Corp (EGLT, EDGAR) bond due April 2020 trading at 45 cents, YTM over 45%.
• GNC Holdings (GNC, EDGAR) bond due August 2020 trading at 59 cents, YTM of 22%.
• Frontier Communications (FTR, EDGAR) bond due April 2022 trading at 75 cents, YTM of 17%.

Distressed Debt Watch

• Cobalt International Energy (CIE, EDGAR) bond due Dec 2019 trading at 8 cents, YTM over 180%. Latest news: "The Company has elected not to make the interest payment of approximately $12.3 million due on November 15, 2017 with respect to its outstanding 3.125% Convertible Senior Notes due 2024 (the “2024 Notes”). The indenture governing the 2024 Notes permits the Company a 30-day grace period to make the interest payment. If the Company fails to make the interest payment within the grace period an event of default will result, and the trustee or noteholders holding at least 25% in the aggregate outstanding principal amount of 2024 Notes may elect to accelerate the 2024 Notes causing them to be immediately due and payable." [Going Concern Warning]
• Exco Resources (XCO, EDGAR) bond due Sept 2018 trading at 12 cents, YTM almost 600%. [Going Concern Warning]
• Bon Ton Stores (BONT, EDGAR) bond due June 2021 trading at 30 cents, YTM over 50%.
• Egalet Corp (EGLT, EDGAR) bond due April 2020 trading at 45 cents, YTM over 45%.
• Frontier Communications (FTR, EDGAR) bond due April 2022 trading at 75 cents, YTM of 17%.
• Iconix Brand Group (ICON, EDGAR) bond due March 2018 trading at 84 cents, YTM of 61%.
• GNC Holdings (GNC, EDGAR) bond due August 2020 trading at 59 cents, YTM of 22%.

Exco Resources, Inc. "Going Concern" Warning

As part of third quarter results:

The Company's ability to make future interest payments in common shares is subject to a 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, which has not yet occurred. The Company's ability to pay interest in additional indebtedness is limited to $7 million due to limitations on its aggregate secured indebtedness within its debt agreements. EXCO's next quarterly interest payment of approximately $27 million, based on the paid in-kind interest rate of 15.0% on the 1.75 Lien Term Loans, is scheduled to occur on December 20, 2017, and is required to be paid in-kind pursuant to the terms of the indenture governing the 1.5 Lien Notes. Unless the Company amends its debt agreements or obtains a waiver or other forbearance from certain lenders, it will not be able to make its next interest payment on the 1.75 Lien Term Loans on December 20, 2017.

If the Company is unable to comply with the covenants under the Credit Agreement, or is unable to make scheduled interest payments on its debt, there will be an event of default. Any event of default may cause a default or accelerate the Company’s obligations with respect to other indebtedness including the 1.5 Lien Notes, 1.75 Lien Term Loans, 2018 Notes and 2022 Notes. If this occurs and the Company's indebtedness is accelerated and becomes immediately due and payable, its Liquidity would not be sufficient to pay such indebtedness and the Company may be forced to seek protection from creditors under the U.S. Bankruptcy Code.

These factors raise substantial doubt about the Company's ability to continue as a going concern. See further information on the risks related to EXCO’s ability to continue as a going concern in the Company’s periodic filings with the SEC.

The Company, together with the Audit Committee of the Board of Directors, is currently exploring strategic alternatives to strengthen the Company's balance sheet and maximize the value of the Company, which may include, but not be limited to, seeking a comprehensive out-of-court restructuring, or reorganization under Chapter 11 of the U.S. Bankruptcy Code. The Company's plans may include obtaining additional financing or relief from debtholders to support operations throughout the restructuring process, delevering its capital structure, and reducing the financial burden of certain gathering, transportation and other commercial contracts. At the direction of the Audit Committee, the Company has retained PJT Partners LP as financial advisors and Alvarez & Marsal North America, LLC as restructuring advisors. The Company is actively engaged in negotiations with its stakeholders to evaluate the feasibility of a consensual in-court or out-of-court restructuring. The Company continues to retain Kirkland & Ellis LLP as its legal advisor to assist the Audit Committee and management team with the strategic review process. If the Company is unable to restructure its current obligations under its existing outstanding debt, and address near-term liquidity needs, it may need to seek relief under the U.S. Bankruptcy Code.

The bond due September 2018 last traded in the high 20s, yield to maturity of 240%.

Distressed Bond Watch

XCO Sept 2018 maturity - 240% ytm.
CIE Dec 2019 - 153% ytm.
EGLT 2020 - 40% ytm.
BONT 2021 - 43% ytm.

Have a Donut

	Maturity	YTM	CY	Mcap
XCO	2018	167%	23%	$29
CIE	2019	85%	10%	$50
REXX	2020	41%	20%	$22
BONT	2021	38%	20%	$11
HOS	2021	32%	12%	$115

"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."

Exco Resources, Inc. Discloses Possibility of Going Concern Warning $XCO

In a new 8-K filing regarding its tender offer and consent solicitation for notes:

In connection with the Tender Offer and Consent Solicitation, the Company also made the following disclosure about its financial condition. 

The Company’s 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. As of June 30, 2016, the Company was in compliance with the financial covenants under its Revolving Credit Facility; however, utilizing the output of the current corporate model and based on the Company’s current estimates and expectations, the Company does not believe it will be able to comply with all of the covenants under its Revolving Credit Facility. In particular, the Company anticipates that, within the next twelve months, the Company will not be in compliance with the required current ratio of at least 1.0 to 1.0 as of the end of any fiscal quarter. This ratio will also be impacted negatively by further reductions to the Company’s borrowing base, if any, that could occur during its September redetermination process. 

If the Company is successful in the Tender Offer, the purchases are expected to be funded primarily with the borrowings under the Revolving Credit Facility. There can be no assurances regarding the success or extent of the purchases of the Notes as part of the Tender Offer. Furthermore, the next borrowing base redetermination under the Revolving Credit Facility is scheduled to occur on or about September 1, 2016. The lenders party to the Revolving Credit Facility have considerable discretion in setting the Company’s borrowing base, and the Company is unable to predict the outcome of any future redeterminations. 

If the Company is not able to meet its debt covenants in future periods, the Company may be required, but unable, to refinance all or part of its existing debt, seek covenant relief from its lenders, sell assets, incur additional indebtedness, or issue equity on terms acceptable to the Company, if at all, and may be required to surrender assets pursuant to the security provisions of the Revolving Credit Facility. Therefore, the Company’s ability to continue its planned principal business operations would be dependent on the actions of its lenders or obtaining additional debt and/or equity financing to repay outstanding indebtedness under the Revolving Credit Facility. These factors raise substantial doubt about the Company’s ability to continue as a going concern. 

The Revolving Credit Facility and the Company’s senior secured second lien term loans (the “Second Lien Term Loans”) require the Company’s annual financial statements to include a report from the Company’s independent registered public accounting firm without an explanatory paragraph related to the Company’s ability to continue as a going concern. If the substantial doubt about the Company’s ability to continue as a going concern still exists at December 31, 2016 or if the Company fails to comply with the financial and other covenants in the Revolving Credit Facility or the Second Lien Term Loans, the Company would be in default under such agreement. Any event of default may cause a default or accelerate the Company’s obligations with respect to its other outstanding indebtedness, including the 2018 Notes and 2022 Notes, which could adversely affect the Company’s business, financial condition and results of operations.

On the Donut Radar: EXCO Resources, Inc.

EXCO Resources, Inc. (XCO) (“EXCO” or the “Company”) today reiterated its commitment to improving its financial flexibility and enhancing long-term value for shareholders through the continued execution of a comprehensive consensual restructuring program (the “Restructuring Program”). EXCO currently has approximately $250 million of liquidity and, after giving effect to the reduction of its 2016 capital budget to $85 million, the Company expects liquidity utilization to average $10 million per month during 2016. EXCO has no debt maturities prior to July 2018.

EXCO’s Restructuring Program will target an aggressive restructuring of gathering and transportation contracts, decreasing corporate overhead and operating costs, modifying unprofitable contracts, and reducing debt. The Restructuring Program will be directed by a streamlined Board of Directors (the “Board”) that represent institutions that own or direct 140 million common shares that equal approximately 50% of the total shares outstanding. These institutions historically supported EXCO through providing debt and equity. EXCO intends to continue to leverage the flexible capital, restructuring expertise and support of these investors to implement the Restructuring Program to drive value for its stakeholders through the dislocation in the market.

The 2018 note last traded for about 40 cents with a YTM of over 50%. They have about a billion of debt that's senior to about $350 million of unsecured debt. Market cap is now over $300 million. Best part: the PV-10 was only about $400 million at $50 oil!

2016 Begins with Ultra Distressed Energy Companies on the Brink

Judging by the bond prices, many of these are likely to file in 2016:

• ZINC, the July 2017 3.8% note trading at 20 cents; ytm 155%
• GDP, the 8.875% notes traded at 8; current yield >100%.
• EXXI, the 3% notes traded at 6; current yield 50% and ytm 145%
• TC, the 7.375% notes traded at ytm of 134%
• SD, the 8.75% notes traded at 12; ytm >100%
• PVA, the 7.25% notes traded at 13; ytm>100%
• BTU, the 6% notes traded at 18.2; ytm 88%
• CLF, the 5.95% notes traded at 28; ytm 88%
• LINE, the 8.625% notes traded at 16; ytm 78%
• XCO, the 7.5% notes traded at 27; ytm 72%
• SSE, the 6.5% notes traded at 16; ytm 54%

Energy and resources. These companies have a combined market cap of $1.67 billion. In all likelihood based on the bond prices, that is illusory. Maybe in 2016 lots of illusory wealth will be revealed as worthless.

What if FB ad revenue that is funded by VC equity contracts, and the multiple contracts, and much of that $300 billion market cap is revealed as illusory? What if the Amazon flywheel runs in the opposite direction (both AWS, as an expression of the VC bubble, and the traditional business, as an expression of consumer spending), and some of that $317 billion market cap is revealed as illusory?

What if the replacement cycle on Apple devices lengthens, or consumers get tired of paying 100% markups for memory, and some of that $587 billion market cap is revealed as illusory wealth?

Well, then, we'd have a bear market.

"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).