Re: Who Knows About Closing versus Effective Date Matters? PetroExplorer, this is an interesting topic.
Oldfart, thank you for the relevant explanations and reference to the receiver’s report. These reports often contain a lot of legalese that is somewhat irrelevant. But, sometimes, the devil is in the detail. You are right : the effective date is December 1, 2016 and revenues/expenses/accounting income accrue (apportionment) to the purchaser starting from that date.
The positive operating cashflows of the last few weeks, on a relative basis to the whole transaction, are not terribly significant and the final purchase price probably discounts the operating cashflows up the final deadline date, but, on an absolute basis, the long delay between the effective date and the closing date (which has not happened yet) corresponds to an amount that is worth considering.
After analysis, I think that this delay issue could be pursued further.
On a few occasions since the beginning of the BIA proceedings, I have communicated with the Receiver in order to voice concerns and to make sure that the process was fair and complete. I think that the long delay between the effective date and closing date is unfair to the seller and plan to communicate with the Receiver. Other debentures can do the same because correction of this problem may take us closer to par.
The relevant factors behind this unfair advantage to the purchaser are:
-The effective date corresponds to the beneficial transfer of the assets.
-TBE assets are likely producing positive operating cashflows even in a receivership situation.
-Normally, the effective date is contemporary to the closing date.
-When there is a delay, usually, it is short (days) and the transaction is then negotiated between the seller and the purchaser in a way that is fair to both parties.
-The delay, in this case, is long, flexible for many weeks to the purchaser without penalty and controlled by the purchaser.
-The delay offers the opportunity to the purchaser to wait, while benefitting, and to keep the possibility of walking away from the deal if the oil market sours or for other reasons. This is like the situation: heads I win, tails you lose.
My Conclusion
The long delay gives rise to a measurable financial consequence to the creditors of Twin Butte (in this specific case, to the unsecured creditors as this will not make a difference to secured creditors).
Given that the delay is material and extends beyond a few days, the seller should obtain adequate compensation to make up for not having received the closing consideration on the earmarked effective date.
The e-mail address of Dustin Olver, managing director of the FTI supervised TBE receivership is:
dustin.olver@fticonsulting.com