Compton is proceeding with a proposed Recapitalization transaction to normalize the Corporation’s capital structure to be on a level playing field with other natural gas producers. We believe that the Recapitalization provides the best available solution to our ongoing debt issue and is critical to our business strategy, providing a stronger financial foundation on which to operate. Upon completion, we will now be able to turn our full attention to our asset base, targeting production and cash flow growth through the internal development of the asset base.
The Board of Directors believes that the Recapitalization transaction is a significant and positive development for Compton and its stakeholders. It is a consensual solution that is fair to both Noteholders and Shareholders, and it delivers on the Corporation’s key commitment to explore and pursue strategic options to improve its capital structure and liquidity. The Board and Management believe that these transactions create a stronger company and allows for the pursuit of greater opportunities.
The Recapitalization has the following elements:
- Conversion of US$193.5 million of Compton Finance 10% Senior Notes due 2017 and US$46.8 million of Compton Finance 10% Mandatory Convertible Notes due September 2011 (together the “Notes”) into equity
- Addition of approximately $50.0 million of new equity raised by way of a backstopped Rights Offering, which will be applied to further reduce debt
- Consolidation of existing common shares on a 200 to 1 basis
- Reduction of total pro forma debt to $145.3 million from $419.6 million at March 31, 2011, resulting in a decrease of annual cash interest and financing expenses by approximately $25.5 million
- Noteholders will receive common shares and rights in exchange for their Notes, enabling them to participate in the Rights Offering
- Shareholders will:
- Retain their existing common shares (adjusted for the share consolidation);
- Receive rights enabling them to participate in the Rights Offering; and
- Receive two Cashless Warrants (as defined in the Term Sheet) for each share held (after giving effect to the share consolidation), each of which will be automatically converted into one common share if the Warrant Trigger Price is reached
As of June 27, 2011, holders of the Notes have executed support agreements whereby they have agreed to vote in favour of and support the Recapitalization, increasing total committed support to approximately 58% of the Principal Claim Amount of the Notes.
BMO Capital Markets and CIBC World Markets Inc. acted as financial advisors to Compton with respect to the Recapitalization.
Please refer to the Information Circular for more detailed information about the Recapitalization.