Stockwatch Business Reporter "Heavy oil producer Twin Butte Energy Ltd. (TBE) lost one cent to five cents on 15.5 million shares, after proposing an unpopular solution to its financial woes. The solution's name is Reignwood Resources, which is linked to China's Reignwood Group. Reignwood is offering six cents for each Twin Butte's shares and an astounding 14 cents on the dollar for its debentures. That means over $21-million will go to shareholders and less than $12-million will go to debentureholders. The face value of the debentures is $85-million, making up a significant percentage of Twin Butte's total net debt of $294-million, most of the rest of which is about $209-million drawn on credit facilities. For weeks now the company's lenders have been extending the facilities' expiry dates (sometimes by just one day at a time) in order to give Twin Butte more time to complete its nearly seven-month-old "strategic review," meaning its hunt for a suitor. Now it has a suitor, but investors are not at all happy. A six-cent offer is a poor outcome for a stock that four years ago traded above $3. It also means that only those shareholders who bought within the last two weeks or so have any chance of making money. As for debentureholders, they must feel that shareholders should not get any money, and certainly not twice the money that debentureholders are getting. Twin Butte's board says it has unanimously determined that the offer is fair to both shareholders and debentureholders. It may be worth noting at this point that the seven members of Twin Butte's board own 9.25 million shares and absolutely no debentures. Management members also own plenty of shares and virtually no debentures (one of them does control $720 in debentures, according to SEDI). The management members will also be fortunate enough to keep their jobs following the takeover.
The stock closed today at five cents, below the six-cent offer price, signalling skepticism that the deal will go through -- or, more likely, that the debentureholders will let it go through. The deal needs the approval of two-thirds of shareholders and debentureholders at a meeting to be held in mid-August. That will be quite a day. Coincidentally, it will be around two years exactly to the day after a contentious meeting was held by one of the clearest cautionary tales for debt-laden producers. In mid-August, 2014, an Alberta producer called Arcan Resources Ltd. held a meeting for its shareholders and debentureholders to vote on a proposed takeover by the private Aspenleaf Resources. The terms of the deal included a payment of about 82.5 cents on the dollar for debentureholders, a price that some of them publicly decried as insulting. The takeover was soundly rejected by all the holders at the meeting. Later in 2014, the desperate Arcan converted most of its debt into equity, giving debentureholders about 6,667 shares for every $1,000 in debentures. In 2015, Aspenleaf returned with an 11-cent-a-share offer, and this time it was victorious. Had Aspenleaf's original offer been accepted, debentureholders would have received $825 per $1,000; under the second offer, they got about $733 (11 cents times 6,667 shares). Still, that is more than five times what Twin Butte's debentureholders are being offered. A more recent takeover target, Long Run Exploration Ltd. (LRE: $0.51), is also promising debentureholders much more money; its suitor is offering 75 cents on the dollar. That Twin Butte's debentureholders are being offered so little does not bode well."