CALGARY, June 24, 2016 /CNW/ – (TSX: TBE) – Twin Butte Energy Ltd. (“Twin Butte” or the “Company“) and Reignwood Resources Holding Pte. Ltd. (the “Purchaser“) are pleased to announce today that they have entered into a definitive arrangement agreement (the “Arrangement Agreement“) pursuant to which the Purchaser has agreed to acquire: i) all of the outstanding common shares of Twin Butte (“Twin Butte Shares“) for cash consideration of $0.06 per share (the “Share Consideration“), and ii) all of the outstanding 6.25% convertible unsecured subordinated debentures due December 31, 2018 of Twin Butte (the “Debentures“) for cash consideration of $140 per $1,000 principal amount of Debentures, plus accrued and unpaid interest thereon (the “Debenture Consideration“). The proposed transaction (the “Transaction“) is to be completed by way of a plan of arrangement under the Business Corporations Act (Alberta).
The Purchaser is a partnership of the Reignwood Group and Horizon Holding Group, both privately held corporations domiciled in Hong Kong and Canada, respectively. The Reignwood Group is a global multi-industrial conglomerate active in sixteen industries including consumer products, real estate, hospitality and lifestyle, healthcare, aviation, ocean engineering, construction management and leasing. The Reignwood Group holds investments in over sixty subsidiaries worldwide and maintains a commitment to the green, healthy development concept through the promotion of business and cultural exchanges between China, Asia and the West.
On December 9, 2015, Twin Butte announced the initiation of a strategic alternatives process led by a Special Committee of the Twin Butte board of directors (the “Twin Butte Board“), supported by management and their financial co-advisors (Peters & Co. Limited and National Bank Financial Inc.) to review alternatives to enhance shareholder value. The process was, in the context of the Company’s ongoing semi-annual review of its credit facilities and the continued weakness in commodity prices, focused on addressing anticipated near term liquidity challenges associated with the expected inclusion of a non-revolving term component to the existing bank facility.
On January 15, 2016, Twin Butte announced the reduction of the Company’s bank credit facility from $275 million to $225 million, consisting of a $115 million revolving syndicated bank facility, a $25 million operating facility and an $85 million non-revolving credit facility. The non-revolving facility was due April 30, 2016.
The extensive review process led to the evaluation of numerous strategic alternatives including asset sales, alternative debt financing and corporate transaction opportunities. Following a thorough review of each alternative, Twin Butte’s Board and management team have determined that the Transaction represents the best alternative in the requisite time for all Twin Butte stakeholders. Furthermore, all of the directors and executive officers of Twin Butte have entered into support agreements and have agreed to vote an aggregate of approximately 3.9% of the outstanding Twin Butte Shares and 0.08% of the outstanding Debentures in favor of the Transaction, subject to the provisions of such support agreements.
The Transaction offers a liquidity event and cash consideration to all stakeholders, and effectively recapitalizes the Company, materially improving the balance sheet. The Purchaser has committed to certain minimum levels of future investment to capitalize on Twin Butte’s high quality medium and heavy oil development opportunities and optimize existing producing assets further arresting declines and positioning Twin Butte for future growth. Twin Butte’s head office and management will remain in Alberta, while continuing the operations and ensuring ongoing employment for the Company’s staff.
The Purchaser has also reached agreement with Twin Butte’s senior secured lenders with respect to the terms and conditions of a new credit facility to be available to the Company upon closing of the Transaction. Upon closing of the Transaction, the Twin Butte Shares and the Debentures will be de-listed from the Toronto Stock Exchange (the “TSX“).
THE ARRANGEMENT AGREEMENT AND APPROVALS
The Transaction is subject to various closing conditions, including receipt of Court approval, Twin Butte shareholder and debentureholder approval, and regulatory approvals, including approvals under the Investment Canada Act (Canada) and the Competition Act (Canada).
The Arrangement Agreement contains customary representations and warranties of each party and interim operational covenants by Twin Butte. The Arrangement Agreement also provides for, among other things, customary board support and non-solicitation covenants, subject to a “fiduciary out” for unsolicited “superior proposals” in favor of Twin Butte and a provision for the right to match any superior proposal in favor of the Purchaser.
The Arrangement Agreement provides for a mutual non-completion fee of $5 million. The non-completion fee is payable in the event that the Transaction is not completed or is terminated by either party in certain circumstances, including if Twin Butte enters into an agreement with respect to a superior proposal or if the Twin Butte Board withdraws or modifies its recommendation with respect to the Transaction.
An annual and special meeting (the “Meeting“) of Twin Butte shareholders and Twin Butte debentureholders will be called to consider, among other things, the Transaction. The Transaction will require the approval of 66²/₃% of the votes cast by the Twin Butte shareholders and, if required, the approval of a majority of a minority after excluding the votes cast in respect of the Twin Butte Shares held by certain directors and officers of Twin Butte, and 66²/₃% of the principal amount of the Debentures held by Twin Butte debentureholders and, if required, the approval of a majority of a minority after excluding the votes cast in respect of the Debentures held by certain directors and officers of Twin Butte, in each case present in person or by proxy at the Meeting. The Twin Butte shareholders and debentureholders will vote as separate classes of securities at the Meeting.
To enable the Company to complete the Transaction, Twin Butte has entered into a forbearance and amending agreement to the existing credit agreement with its bank syndicate in connection with the Company’s failure to repay the $85 million non-revolving credit facility on June 23, 2016 and the extension of the revolving period of the Company’s $140 million revolving credit facility from June 23, 2016 to the earlier of closing of the Transaction and termination of the Arrangement Agreement. The payment default upon maturity of the Company’s $85 million non-revolving credit facility on June 23, 2016 will constitute an event of default under the Company’s credit agreement. The bank syndicate has agreed to forbear from exercising its rights and remedies related thereto and to any non-payment of interest on the outstanding Debentures until the earlier of closing of the Transaction, subject to certain milestones being met in accordance with the forbearance and amending agreement, and termination of the Arrangement Agreement. The bank syndicate requires that the Transaction close by August 15, 2016, as such date may be extended for up to 90 days as required to obtain regulatory approvals for the Transaction.
The Company is restricted from making any payment of interest on the outstanding Debentures while it is in default under the credit agreement. As a result, the semi-annual interest payment on the Debentures payable June 30, 2016 will be required to be deferred. However, this interest will be paid upon closing of the Arrangement in connection with the acquisition of the Debentures, together with all other accrued and unpaid interest on the Debentures, in accordance with the Arrangement. The TSX has advised the Company that the Debentures, when they commence trading on June 27, 2016, will trade on an interest flat basis until further notice. The TSX has advised that it will not report accrued interest regarding any trades made on an interest flat basis to its participating organizations.
Further details with respect to the Transaction will be included in the information circular to be mailed to Twin Butte shareholders and debentureholders in connection with the Meeting. The Meeting is expected to be held in mid-August 2016 with closing of the Transaction anticipated to occur thereafter in August 2016 upon satisfaction of all conditions precedent thereto. A copy of the Arrangement Agreement and the information circular will be filed on Twin Butte’s SEDAR profile and will be available for viewing at www.sedar.com.
RECOMMENDATION OF THE TWIN BUTTE BOARD
Based on the Fairness Opinion (as defined below) and the recommendation of the special committee of the Twin Butte Board, and after consulting with its financial and legal advisors, among other considerations, the Twin Butte Board has unanimously: (i) determined that the Transaction is in the best interests of Twin Butte, the Twin Butte shareholders and the Twin Butte debentureholders; (ii) resolved to recommend that Twin Butte shareholders and Twin Butte debentureholders vote in favor of the Transaction; and (iii) determined that the consideration to be received by Twin Butte shareholders and Twin Butte debentureholders pursuant to the Transaction is fair to the Twin Butte shareholders and the Twin Butte debentureholders, respectively.