(TSX:PMT) Feb. 17, 2017 – Perpetual Energy Inc. is pleased to announce the following strategic financing initiatives that will underpin the execution of its 2017 capital program while strengthening its liquidity and debt repayment profile:
- a $45 million second lien senior secured term loan
- a $9 million non-brokered equity private placement
- an increase and extension of the Company’s current bank lending arrangements to October 31, 2017, providing for a $14 millionincrease in total borrowing capacity under the credit facility to $20 million.
The Financing Transactions will deliver an additional $68 million of liquidity and reduce pro forma debt by $9 million.
The intrinsic benefits from the Financing Transactions are consistent with Perpetual’s top strategic priorities by:
- providing the Corporation with a strong financial foundation and capital structure to execute its $70 million 2017 capital program, primarily focused on the development of its East Edson and Mannville assets and expected to deliver an increase in exit rate, based on average December forecast production, of close to 60 percent over 2016
- enhancing optionality to manage the Company’s 1.67 million share investment in Tourmaline Oil Corp.
- affording the flexibility required to optimally manage its senior notes maturing in March 2018 and July 2019
- providing additional liquidity to manage downside risk in the current uncertain commodity price and operating environment
- establishing the platform to execute the Company’s production and funds flow growth plan into 2018 and beyond.
“Collectively, these Financing Transactions, combined with the previously announced extension of maturity of $17.4 million of our unsecured senior notes to 2022, significantly strengthen Perpetual’s liquidity and debt repayment profile and secure funding for our attractive 2017 and 2018 business plan,” said Sue Riddell Rose, President and CEO of Perpetual.
The Financing Transactions are expected to close in early March 2017, subject to customary closing conditions. Peters & Co. Limited is acting as financial advisor to the Corporation with respect to the Financing Transactions.
Perpetual has executed a commitment letter with Alberta Investment Management Corporation whereby AIMCo. has agreed to provide a second lien senior secured term loan facility that is repayable four years following the date of closing and bearing interest at 8.1% per annum. Loans under the Second Lien Facility will be made available in an initial drawdown in a minimum amount of $35 million on the closing date, expected to be in early March 2017. A second drawdown of the remaining $10 million prior to November 30, 2017 provides flexibility to optimize financing costs and increase funding efficiency.
In conjunction with the funding of the Second Lien Facility, AIMCo. will receive, for no additional consideration, warrants to purchase common shares of Perpetual at a ratio of 120 warrants for every $1,000 committed under the Second Lien Facility, resulting in the issuance of 5,400,000 Warrants. Each Warrant will entitle the holder to acquire Common Shares on a one for one basis, at an exercise price equal to a 45% premium to the volume weighted average trading price of the Common Shares for the 10 trading days ended prior to the date of issue of the Warrants, at any time prior to three years following the date of issue of the Warrants. Provided the volume weighted average trading price of the Common Shares is greater than the exercise price for 60 consecutive calendar days (subject to certain restrictions), Perpetual will have the option to require the Warrant holder to exercise all or any portion of the Warrants at any time thereafter.
Concurrent with execution of the Commitment Letter, Perpetual has entered into agreements to complete the non-brokered equity private placement of units, consisting of 5,143,000 Common Shares and 1,080,030 Warrants to purchase Common Shares on the same terms and conditions as the Warrants issued concurrently with the Second Lien Facility at a price equal to the closing price of Common Shares February 16, 2017 of $1.75 per Equity Unit for aggregate gross proceeds of approximately $9 million. The Common Shares and Warrants will be subject to a four month hold period pursuant to securities regulations.
AIMCo. has agreed to purchase 50% of the Equity Units issued. Perpetual insiders and other existing shareholders have agreed to purchase up to the remaining 50% of the Equity Units. After completion of the Equity Private Placement and Second Lien Facility financings, AIMCo. will own approximately 4% of the outstanding Common Shares (13% if the Warrants are exercised in full). Giving effect to the Financing Transactions, Perpetual insiders will not increase their pro rata shareholdings as a result of these transactions.
“Despite an unprecedented downturn in Alberta’s energy sector, Perpetual has demonstrated a focused commitment to building long term value for its investors, as evidenced by its forward thinking business plan and the sophistication of the management team to see it executed,” said AIMCo Chief Investment Officer Dale MacMaster. “We are pleased to have the opportunity to make this investment on behalf of our clients.”
Any purchases of Equity Units by insiders will be considered a related party transaction subject to Multilateral Instrument 61-101. Perpetual will rely on exemptions from the formal valuation and minority shareholder approval requirements provided under sections 5.5(a) and 5.7(a) of MI 61-101 on the basis that participation in the private placement by insiders will not exceed 25% of the fair market value of Perpetual’s market capitalization.
The securities described herein have not been, and will not be, registered under the United States Securities Act of 1933, as amended, or any state securities laws, and accordingly, may not be offered or sold within the United States except in compliance with the registration requirements of the U.S. Securities Act and applicable state securities requirements or pursuant to exemptions therefrom. This news release does not constitute an offer to sell or a solicitation of an offer to buy any of Perpetual’s securities in the United States.
Perpetual has received a commitment from its credit facility lender, to increase its reserves-based credit facility borrowing limit from $6 million to $20 million and extend the maturity to October 31, 2017 on similar terms and conditions as the existing credit facility. The Increased Credit Facility borrowing base will be subject to redetermination by the lender prior to May 31, 2017.