Debenture holders win at Twin Butte

About eight months back, a group of debenture holders of Twin Butte Energy, took a stand on what it deemed to be a matter of principle: they didn’t like the consideration being offered, particularly when viewed alongside what the holders of common shares were being offered in the proposed takeover by Singapore-based Reignwood Resources.

The so-called Ad Hoc Committee took that stand knowing the company would enter receivership if the transaction — done by a plan of arrangement and requiring support of both classes of security holders — was voted down.

“The Ad Hoc Committee considered the Reignwood Transaction to be unfair to debenture holders, and also contrary to the fundamental principle that shareholders rank behind creditors,” said holder Mike Maguire in an affidavit filed this week with the Court of Queen’s Bench of Alberta. In Reignwood’s offer, the debenture holders were offered $12 million ($140 per $1,000 face value); the shareholders about $21 million ($0.06 a share.)

The principle was worth fighting for: this week the group, after retaining a financial adviser (Macquarie Capital Markets) and a legal adviser (Bennett Jones) and after a new buyer emerged for Twin Butte and after the bank loan was paid off with the sale proceeds, had some good news to announce.

It now expects each debenture holder’s recovery will be anywhere from a low of about $450 per $1,000 face value of debenture to a potential high of $600 per $1,000 face value, “subject to among other things, the claims process.” (That estimate is based on Twin Butte’s cash balances.)

By any measure that’s a major victory for a group that could have rolled over and accepted what was on offer. That $33 million offer was given the full endorsement of the board and by the financial advisers retained by the board. (The two leading proxy advisory firms, Glass Lewis and ISS, also advised shareholders to support the transaction.)

As a measure of how much outside the loop the debenture holders (who anted up $85 million in late 1983) were kept, the company (supported by an opinion from Peters & Co.,) initially said the offer was fair to the shareholders. Only when the debenture holders demanded the fairness of the offer made to them be considered, did the company hire an adviser to opine. In due course Canaccord Genuity said the offer was fair to the debenture holders. When the matter was put to security holders at a meeting in late August 2016, the shareholders supported the transaction — but the debt holders gave a solid no with more than two-thirds of the debentures voting against the offer. A couple of days later, Twin Butte was put into receivership.

And that’s when the Twin Butte sale process was relaunched but not before the Ad Hoc Committee presented a proposal and recapitalization plan. “All of these steps were intended to allow Twin Butte and all its stakeholders to benefit from the strengthening energy market,” said Maguire’s affidavit.

As it turned out, the new sale process came at a slightly better time. The process was a little different because Macquarie Capital was advising the Ad Hoc Committee on potential buyers. “The addition of another sales agent would not have occurred without the involvement of the Ad Hoc Committee and its advisors,” noted Maguire.

There were 30 bidders for Phase 1, nine of whom made en bloc for all of the assets and 21 made offers to purchase individual assets. A Chinese buyer, Henenghaixin Operating Corp., was declared the winner — though the receiver has said it won’t disclose the price “for three months after closing.”

Meantime the debenture holders and their advisers deserve a special call out.