There will be lots at stake in a Calgary court room Wednesday when the various parties in the receivership of Twin Butte Energy gather to hear how the proceeds from a proposed sale of the company will be split up between creditors — if the deal is approved at all.
Twin Butte is something of a test case given that last August holders of the company’s debentures overwhelmingly voted down a plan of arrangement whereby they would have received less than the holders of common shares — a junior security.
Specifically, the management-proposed plan called for the debenture holders to receive $140 per $1,000 face value — for a total payment of $11.9 million — while the common shareholders were slated to receive $0.06 a share — for a total payment of $22.4 million. Those proceeds would have flowed from the sale of the company to Singapore-based Reignwood Resources. The debenture holders, who advanced two alternative proposals to divide up the proceeds including a debt-for-equity swap, a move that would have given the common shareholders a small on-going interest, voted the deal down by a more than two-to-one margin.
A couple of days after that vote, a receiver, FTI Consulting, was appointed. It, along with CIBC World Markets and Peters & Co., the firms retained to find a new buyer, has been busy. A new buyer, Henenghaixin Operating Corp., was found after an initial list of 30 interested parties was reduced to seven for Phase 2 of the sale process. Plans call for that sale, and the distribution of proceeds, to be approved by Madam Justice Glenda Campbell on Wednesday.
And the convertible debenture holders — who invested $85 million in late 2013 — are rather excited given the language used in the receiver’s latest report.
In that report, investors were told “the purchase price is sufficient to pay all secured lenders in full (including potential lien amounts) and provide for a substantial distribution to the unsecured creditors.” At last count (July 2016) the secured lenders were owed $205.4 million. But the debenture holders are one part of the unsecured creditor basket: accounts payable and accrued liabilities were listed at $31.3 million.
Substantial is a word that comes with many possibilities. For instance is it substantial in relation to the $11.9 million ($0.14 on the dollar) debenture holders were scheduled to receive last year had they supported the plan of arrangement? Or is it substantial when measured against what’s left over after the secured liabilities are paid? Or is it substantial when measured on a per share equivalent basis?
Complicating the issue is that the receiver has refused to disclose the purchase price on the grounds that it’s “commercially sensitive information.” In FTI’s view, disclosing the purchase price “publicly prior to the closing of the transaction could cause significant financial harm to a future sales process in the event the (Henenghaixin) transaction does not close.”
In an age of supposed transparency that comment seems from left field. And besides, the current transaction has to be disposed of first. “Clearly they don’t want the debenture holders to know what the deal is and the question is why,” noted one source familiar with the process.
FTI’s decision has prompted at least one debenture holder to send a letter to the receiver requesting the purchase price be disclosed. Such information, the investor said, would allow time to assess “the implications on me as an unsecured creditor” and also whether “full value has been extracted from these assets as of today’s date.”
Calls to FTI seeking a comment weren’t returned.