Perpetual Energy’s shares plunge 20%
ASC rules in favour of rights offering
• Perpetual Energy Inc.’s share price plunged more than 20 per cent Thursday after securities regulators ruled in favour the company’s planned $25 million rights offering.
Lawyers for Perpetual argued at an Alberta Securities Commission hearing Tuesday and Wednesday that an application to cease trade the offering would have “disastrous” consequences for the company, including a default on its loan covenants and the requirement to immediately repay $330 million worth of debt.
But the ASC panel ruled in Perpetual’s favour, throwing out both the application and the appeal brought forward by a group of debt holders, who said the rights offering gives Perpetual’s existing shareholders too much control. Following the decision, Perpetual announced its rights offering would proceed immediately, and shareholders would have the option to acquire 4.3 common shares at an exercise price of 16 cents per right.
Perpetual’s share price fell to six cents per share on Thursday, down almost 30 per cent and just off its 52-week low.
“It’s a penny stock now,” FirstEnergy Capital Corp. analyst Michael Hearn said, adding that gyrations in its price should not be too surprising.
He said the updated rights offering will add to the dilution of the company. In November, the company anticipated issuing 680 million shares to a combination of debt and equity holders as part of its recapitalization plan.
Given the updated rights offering Thursday, Perpetual will now issue about 900 million shares to achieve the same result: a reduction of its debt by $55 million and the extension of its earliest debt maturities by one year.
Three of the company’s debt holders — Polar Asset Management Partners, K2 & Associates Investment Management and Cambridge Global Asset Management — had challenged the rights offering and argued it limited the amount of the company that debenture holders could own.
Billionaire oil investor and Perpetual chairman Clay Riddell agreed to backstop the deal and buy additional share that were not purchased as part of the rights offering, thereby ensuring Perpetual would raise a minimum of $25 million.
“Based on a 14-cent (average share) price, the rights holders will get 65 per cent of the outstanding shares for $25 million,” Goodmans LLP lawyer David Conklin told the ASC hearing while acting on behalf of the debt holders. “For $35 million, the debenture holders only get 22 per cent. That’s just not right.”
The ASC did not provide rationale for its decision, but said it would release a written decision “in due course.” The commission did not respond to a request for comment.