Download The CFO`s Dilemma

Drilling Down on
Strategic Alternatives
in the Current Energy Crisis
WEBINAR SERIES
Part I: The CFO's Dilemma - Proactive Next Steps
April 1, 2015
Today’s Speakers
Trent Rosenthal (moderator)
Restructuring & Bankruptcy Partner – Burleson LLP
● Board Certified in Business Bankruptcy Law by the Texas Board of Legal Specialization
● Over 3 decades experience in restructuring and bankruptcy law
● Handled numerous oil & gas restructurings and workouts
James (“Jim”) C. Row, CFA
Managing Director & Founder – OFSCap, LLC
● Background in energy investment banking (international/domestic)
● Securities and valuation expert
● Former E&P operator and CFO
Allen Parks
Managing Director – OFSCap, LLC
● 18 years experience in contract drilling industry
● 18 years experience in oilfield services investment banking
Douglas Draper
Restructuring & Bankruptcy Attorney – Heller, Draper, Patrick, Horn & Dabney
● Fellow American College of Bankruptcy Lawyers
● Listed on Best Lawyers in America for the past 25 years
● Ranked Tier 1 Bankruptcy Counsel in Chambers USA
The CFO's Dilemma - Proactive Next Steps
2
Housekeeping Items
• This Webinar is Being Recorded
̶ A recording of today’s webinar will be emailed to
attendees after the webinar
• We Welcome Questions
̶ Enter questions into the Questions Pane and we will
respond in the Q&A session at the end
• Think of Something Later?
̶ Email [email protected]
DISCLAIMER: The viewing of online seminars and the use of the Internet for communications with Burleson LLP, Heller, Draper, Patrick Horn & Dabney, and OFSCap will not establish
an attorney-client relationship and messages containing confidential or time-sensitive information should not be sent. In order to protect past, present or potential clients, we cannot
treat unsolicited e-mails as confidences or secrets.
The CFO's Dilemma - Proactive Next Steps
3
Today’s Agenda/Toolbox
• Dealing with Loan Covenants
• Waivers and Extensions
• Debt to Equity Conversion
• New Capital
• M&A and Consolidations
• Q&A Session
The CFO's Dilemma - Proactive Next Steps
4
Today’s Goals
• Provide a Toolbox of Practical Points for a CFO
• Highlight Action Items to Select Set of Tasks or CFO
Responsibilities
• Provide Thoughts and Draw Attention to Many
Critical Issues
• Focus on “Lessons Learned” From Previous
Downturns
• Briefly Address Various Financial Restructuring
Alternatives If A Company Can’t Avoid A Filing
The CFO's Dilemma - Proactive Next Steps
5
Dealing with Loan/Bond Covenants
• Proactive Communication
̶ Be the “Good Actor”
• Function as Early Warning Sign to Lender
• Financial, Informational, Ownership, Affirmative,
Negative or Positive in Nature
• Violation May Result in Default on Loan or Bond,
Penalties Applied, or Loan Being “Called”
• Hire Turn-Around Consultants and Counsel Who
Know Work-Out Concepts
The CFO's Dilemma - Proactive Next Steps
6
Covenants – CFO Strategies
• Default
̶
Reserve Ratio (Valuation)
̶
Leverage Ratios
̶
Cash Flow Covenants
̶
Soft Technical Defaults
• Approvals/Best Practice
Steps
Banks – Loan Committee, Audit
Committee, and Regulatory Approval
̶
Companies – Board Approval for Loan
Modifications
• Penalties
̶
̶
Default
̶
Seek Advice of Consultants and Counsel
̶
Acceleration
̶
Protection for Management
̶
Exercise of Remedies
̶
MSA’s as Leverage
̶
Effect on Other Financing Arrangements
• Called
̶
Prevention
̶
Renegotiation / Withdrawn
̶
Bank Bondholder Hesitancy to Call –
Ramifications
The CFO's Dilemma - Proactive Next Steps
7
Loan vs. Bond Strategies
• Covenants
̶ Maintenance vs. Financial
̶ Negotiable vs. Not Negotiable
• Lenders
̶ Known Group vs. Unknown Group
• Information Sharing
̶ Restricted vs. Non-Restricted
• Credibility Under Scrutiny
Accurate Granular Forecast Critical
The CFO's Dilemma - Proactive Next Steps
8
Covenants – Bank or Bond Committee Position
•
•
•
•
•
•
•
Perspective
Position
Systematic Pressures
Internal Pressures
Approvals
Regulatory Hurdles
Equity Players Purchasing Bonds at a Discount (i.e. Loan
to Own)
• Know Who You Are Dealing With and What They Want
– Money, Stock, Assets, All of the Above?
The CFO's Dilemma - Proactive Next Steps
9
Waivers & Extensions
• Why – Waiving of Rights
• Legal Effect/Ramifications
̶ Prevents Creditor From Taking Any Legal Action
̶ Gives Company Breathing Room
̶ Don’t Over Commit in Exchange For Waiver
̶ Make Reasonable Offers For Waiver, Such As
Bargain for Cooling-Off Period - Buy Time!
• Form and Substance
̶ Sell the “Plan” and Benefits to Creditor
̶ Look At It From Both Perspectives
̶ Adviser and Legal Counsel Involvement in “Pitch”
to Bondholders/Lenders
The CFO's Dilemma - Proactive Next Steps
10
Waivers & Extensions
• Loan vs. Bond Differences
̶ Bonds Usually Have Indenture Trustees Looking Out For
Bondholders
̶ Lenders have Loan and Credit Committees. Work-out
Officer (Advisors and Counsel) Must be Able to “Sell”
Company’s Request to Bank Management
The CFO's Dilemma - Proactive Next Steps
11
Debt to Equity Conversions
• Lender Agrees to Process Converting All or a
Portion of their Loan into Some Form of Equity to
Restore Liquidity
• Strategies
̶ Manageable Debt Level
̶ Lender Sells Debt to Someone that Wants Equity in the
Company or Lender (non-bank) wants Equity
The CFO's Dilemma - Proactive Next Steps
12
New Capital
• Challenging
• Acquisition Capital for the Weak
• Is it Debt or Equity, or maybe “Debtequity”
̶ Mezzanine with Substantial Equity Components
̶ 2nd Lien?
̶ Available Unpledged Assets, ORRI’s, Production
Payments, Royalties
̶ New Capital through Chapter 11 Process is Attractive
Option, such as Debtor-in-Possession Lending
The CFO's Dilemma - Proactive Next Steps
13
M&A and Consolidations
• Oilfield Services Will See Little New Capital Until
Knife Hits the Floor or Bankruptcy
̶ More Prone to Distressed Outright Purchase or
Combination
̶ Great Opportunities to Buy Valuable Assets from
Distressed Companies
• New Capital Sources for E&P
̶ Hedge Funds
̶ E&P Advantage
• Funds Created to Make Money In This Market
The CFO's Dilemma - Proactive Next Steps
14
Wrap-Up and Call to Action
• Be Proactive and Responsive
̶ Under-promise and Over-perform
̶ Sell Your Capabilities and Plan
̶ Give Creditors the Opportunity to Increase Recovery By
Working With You
• Over-Communicate
• Hire Counsel and Financial Advisors Familiar With
Work-outs and Restructuring to Guide You Through
Process
• Involve Energy Lawyers that Know the Industry
̶ Fresh Face and Lightning Rod
The CFO's Dilemma - Proactive Next Steps
15
Q&A
• Please Submit Questions via Questions Pane on
Your Screen
• Please Be Patient As We Try to Answer All
Questions
• Thank You For Attending!
The CFO's Dilemma - Proactive Next Steps
16
Join Us for Part II of Our Webinar Series
• Part II: Public Company Boards of Directors and
Corporate Governance
• Wednesday, April 22, 2015
• 12:00-1:00 p.m. Central Time
• Registration Link:
̶ https://attendee.gotowebinar.com/register/1951078251
275250433
The CFO's Dilemma - Proactive Next Steps
17
Contact Information
Trent Rosenthal [Online Bio]
Restructuring & Bankruptcy Partner – Burleson LLP
Phone: 713.358.1724
Email: [email protected]
James (“Jim”) C. Row, CFA [Online Bio]
Managing Director & Founder – OFSCap, LLC
Phone: 713.823.2900
Email: [email protected]
Allen Parks [Online Bio]
Managing Director – OFSCap, LLC
Phone: 713.816.6848
Email: [email protected]
Douglas Draper [Online Bio]
Restructuring & Bankruptcy Attorney – Heller Draper, Patrick, Horn & Dabney, LLC
Phone: 504.299.3333
Email: [email protected]
The CFO's Dilemma - Proactive Next Steps
18