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In connection with the Plan, the Company and its subsidiaries, Delphi Energy (Alberta) Limited and Delphi Energy Partnership (collectively, the “Delphi Parties“), have entered into a restructuring support agreement (the “Support Agreement“) with certain of the Delphi Parties’ significant secured creditors, Luminus Energy IE Designated Activity Company, Concise Capital Management, LP and Stornoway Portfolio Management, Inc., directly and/or through their managed funds (the “Initial Plan Sponsors“). Pursuant to the Support Agreement, the Initial Plan Sponsors have, among other things, agreed to provide $8.75 million in cash, in part, to fund the Plan (the “Plan Sponsor Funds“) and to take other actions to support the Plan. The Support Agreement remains subject to approval and authorization by the Court of Queen’s Bench of Alberta (the “Court“) in connection with the Delphi Parties’ restructuring efforts under the CCAA.
Concurrent with execution of the Support Agreement, Delphi also entered into a capital investment agreement (the “Investment Agreement“) with Kiwetinohk Resources Corp. (“KRC“) pursuant to which KRC has agreed to make a $22.9 million capital investment (the “Capital Investment“) in Delphi following emergence from CCAA in exchange for shares and warrants, as further described below. Delphi’s obligations under the Investment Agreement are subject to approval by the Court and the effectiveness of the Plan.
The implementation of the Plan is conditional upon, among other things: (i) the approval by the required majorities of holders of the Company’s senior secured notes due 2023 (“Second Lien Notes“) and General Unsecured Creditors (as such term is defined in the Plan) of the Delphi Parties voting at separate meetings (“Meetings“) of those creditors to be called for such purpose, which Meetings are expected to be held in early September 2020; and (ii) if the Plan is approved at the Meetings, an order of the Court sanctioning the Plan under the CCAA.
The Delphi Parties intend to bring an application before the Court on July 10, 2020 to seek approval of the Support Agreement, the Investment Agreement and the holding of the Meetings.
The Meetings will be held pursuant to and in accordance with an order of the Court also to be sought on July 10, 2020. Additional information with respect to the Plan and the Meetings, including instructions on how to vote at the meetings, will be set forth in an information circular and proxy statement of the Delphi Parties (the “Information Circular“), which is expected to be mailed or otherwise made available in late July to early August 2020 to beneficial holders of Second Lien Notes and General Unsecured Creditors as of the applicable record dates. A copy of the Information Circular will also be made available on SEDAR under the Company’s profile.
RESTRUCTURING TRANSACTION
The Plan and the Restructuring Transaction include the following key elements:
- The operations of the Delphi Parties will continue as normal and without disruption following the implementation of the Plan;
- The claims of creditors in respect of:
- approximately $13.5 million outstanding under the Company’s debtor-in-possession interim loan financing secured by a Court-ordered priority security interest,
- approximately $13.0 million outstanding under the Company’s senior credit facility secured by a first lien security interest, and
- approximately $119.7 million outstanding under the Second Lien Notes secured by a second lien security interest,
will be settled in exchange for approximately 14.7%, 14.2% and 36.5% of the issued and outstanding voting common shares of a newly created class of shares of the Company (the “New Shares“), respectively, subject, in the case of the Second Lien Notes, to the Second Lien Opt-Out Election (as defined below);
- Subject to the terms and limits set out in the Plan, beneficial holders of Second Lien Notes holding an aggregate principal amount of Second Lien Notes equal to or less than $200,000 will have the opportunity to elect (the “Second Lien Opt-Out Election“) to receive cash in the amount of $0.25 per dollar of outstanding principal amount of Second Lien Notes in lieu of the New Shares that they would otherwise be entitled to receive pursuant to the Plan; provided that, in the event that the aggregate of all payments pursuant to the Second Lien Opt-Out Election would exceed the aggregate amount of $1 million, such payment will be reduced on a pro rata basis so that total payments pursuant to the Second Lien Opt-Out Election do not exceed $1 million;
- In exchange for the Plan Sponsor Funds, the Initial Plan Sponsors will be issued approximately 9.6% of the issued and outstanding New Shares;
- In exchange for the Capital Investment, KRC will be issued 25% of the New Shares, plus warrants that are exercisable into such number of shares as will result in KRC holding 50%+1 of the New Shares upon satisfaction of certain conditions in the future and payment of an aggregate exercise price equal to approximately $37.5 million (subject to certain adjustments in accordance with the terms of the warrants);
- General Unsecured Creditors with accepted claims less than or equal to $5,000 (“Convenience Class Creditors“), and other General Unsecured Creditors who make an election to be treated as Convenience Class Creditors, will be paid in full up to $5,000;
- All other General Unsecured Creditors will be entitled to payment in respect of their accepted claims based on their pro rata share of a General Unsecured Creditor cash pool in the amount of $3 million, less amounts required to fund payments to Convenience Class Creditors. Beneficial holders of Second Lien Notes will be entitled to be treated as General Unsecured Creditors in respect of a deficiency claim in the aggregate amount of approximately $83.8 million;
- Delphi will grant to certain officers of the Company options and restricted share units entitling them to acquire in the aggregate 10% of the issued and outstanding New Shares; and
- All existing common shares, warrants and options of Delphi (collectively, the “Equity Claims”) will be cancelled and extinguished for no consideration and without any return of capital. Holders of Equity Claims will not be entitled to attend or vote at the Meetings.
In connection with the Plan, Delphi’s existing investor rights agreement will be terminated, and Delphi will enter into a new investor agreement with Luminus Energy IE Designated Activity Company and KRC granting them certain board nomination and approval rights.
The above description is a summary only and is subject to the final provisions of the Plan.
Additional Information
Delphi and certain of its subsidiaries were granted an initial order and protection under the CCAA on April 14, 2020. PricewaterhouseCoopers Inc. has been appointed by the Court as monitor in the CCAA proceedings. Materials publicly filed in the CCAA proceedings, including copies of the initial order of the Court, are available on the monitor’s website at http://www.pwc.com/ca/delphi. Delphi will continue to provide updates regarding its restructuring as developments warrant.
About Delphi Energy Corp.
Delphi Energy Corp. is a junior E&P producer of liquids-rich natural gas. The Company has achieved top decile operational results through the development of its high quality Montney property, uniquely positioned in the deep basin of northwest Alberta. Delphi continues to improve its operational efficiencies through the development of its dominant land position at Bigstone. Delphi is headquartered in Calgary, Alberta.
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