The Situation is Grim, but There is Still HopeThere are lots of rumours flying around, so just as well that this stock stays halted. Everybody needs to calm down, and wait for some more developments.
Lots of people lost money on this stock, so the only chance of more recovery, is not to sell for cash, at the bottom of the market. The company has to remain a going concern, to give some chance of recovery, that can come with rising oil prices.
The Twin Butte Press release said:
"The failure of the debentureholders to approve the arrangement resolution at the meeting terminates the forbearance period provided by Twin Butte's senior lenders under Twin Butte's forbearance agreement with its syndicate of senior secured lenders. As a result, such lenders are now entitled to exercise any rights or remedies they have, including accelerating the repayment of the company's outstanding bank debt, and enforcing their security by appointing a receiver to liquidate the company's assets and manage the company's affairs. Twin Butte intends to engage in pro-active discussions with its lenders in this regard."
Lenders are entitled to call a receiver, but lenders also know that receivership is a messy process. Appointing an accounting firm that knows little about oil and gas, just means things decline into the ground, faster. Lenders know their track record has been poor, when trying to get value from fire-sales, in the current environment. Everybody wants something for nothing, when trying to buy an asset, so people need to keep reasonable operations intact.
The best people to run the existing assets, are Twin Butte. Changing management teams, means there is a learning curve in getting up to speed, on the company's opportunities. Knowledge has value. The organization needs to be kept intact, with some changes to the board.
The ad-hoc group said:
"Although the ad hoc group strongly disagrees with the conduct and tactics of the board, the ad hoc group believes that Twin Butte has valuable assets and a management group capable of developing those assets. If the arrangement fails to achieve sufficient securityholder support and is voted down, the ad hoc group is prepared to step forward and provide tangible support for alternative paths forward that properly reflect legal priorities and that optimize the recovery for all stakeholders."
Let's see what options they bring forward. Here's some possible outcomes:
1. Debenture to shares conversion: wipe out $85 million of debt on the books. Need to figure out a fair ratio, that won't result in total dilution. We can do better than Lightstream. The goal is to ensure that in two years time, the value of those shares will be worth more than the principal value of the debentures, plus the interest that would have been paid out.
2. Sell off the tax pools. This requires some reorganization, to flip out part of the company and the tax pools, and create a new company. Someone might want some write-offs. If we say 5 cents on the dollar for tax-pools, that could mean $25 million, to pay down some debt.
3. Raise some equity. Some funds are required. Some guys may have access to some capital. It's like fixing a house: do you sell your house for $250,000, or do you spend $40,000 to spruce it up, then sell it for $350,000, in a couple of years, and pay off your mortgage, instead of still owning the bank some money? Investors may be ask to participate in a rights offering.
4. Bring in another company to backstop debt. This would be similar to when Second Wave brought in Brookfield, who was their gorilla debt holder. Of course that didn't end so well, so we'd hope for a better outcome. But the recap of Second Wave, did see the stock rise for a period of time, before it came back down. Maybe Reignwood would like to be a big debt holder.
I hope the Ad Hoc group isn't looking for a simple solution of just getting more of the pot, out of Reignwood. We all want to get more recovery, so that means keeping this company a going concern, and out of the hands of the banks.
It could always be worse: LTS had cashflow of $3.8 million in Q2, and total debt of $1.575 billion. TBE looks like a rockstar, compared to those numbers.