Troubled gas exploration company Quicksilver Resources has moved closer to bankruptcy when it announced on Tuesday that it has decided not to make the approximately $13.6 million interest payment due on the day on its 9.125% senior notes due 2019.
Under the terms of the indenture governing the 2019 Notes, the company has a 30-day grace period before the failure to make the interest payment results in an event of default.
The company said in a statement that it believes it is in the best interests of its stakeholders to continue to focus on actively addressing the company’s debt and capital structure and intends to continue discussions with its creditors during the 30-day grace period.
In the event of Quicksilver not makeing the interest payment before the end of the grace period, the trustee or the holders of at least 25 per cent in the aggregate principal amount of the outstanding 2019 Notes may declare the principal and accrued interest for all 2019 Notes due and payable immediately. The acceleration of the principal under the 2019 Notes would also result in defaults under the terms of other indebtedness of the company.
Quicksilver has been in the red for some time, with its problems caused mainly by the consistently low natural gas prices and an inability to shift some of its less-commercial assets, such as those in northwest Canada.
In March, the struggling company sold 312,000 acres in the Niobrara Shale play, which it co-owned with Shell, to Southwestern Energy for $180 million. In April 2013, Quicksilver sold a quarter of its interest in its Barnett Shale oil and gas assets to TG Barnett Resources, a wholly owned US subsidiary of Tokyo Gas, Japan’s largest gas provider.
This, however, has not managed to save the company which in January was removed from the New York Stock Exchange when the average price of its stock fell below $1 for more than 30 days. When it was delisted, Quicksilver was selling for 15 cents a share.
Last week, the company announced that it would lay off ten per cent of its workforce; a move which Quicksilver’s director of media and investor relations, David Erdman attributed to the need to match the size of the company’s workforce to its newly diminished production levels.
“In response to the challenging oil and gas price environment, today we implemented a reduction in our workforce of approximately 10 per cent,” Erdman said. “The decision to reduce the staff was difficult, though it now aligns with our expected activity levels.”
In a statement issued on Tuesday, Quicksilver said that while it has retained Houlihan Lokey Capital, Inc., Deloitte Transactions and Business Analytics LLP, and other advisers to collectively assist with the evaluation of the company’s options, there can be no assurances that the company will be able to successfully restructure its indebtedness, improve its short- and long-term liquidity position, or complete any strategic transactions in a timely manner or at all.
Accordingly, the company may need to seek voluntary protection under chapter 11 of title 11 of the U.S. Code to restructure its capital structure.
“I don’t think it’s a surprise to anybody,” an equity analyst, who preferred to remain anonymous, told Platts.
The company likely will have to “do some kind of restructuring,” either a so-called prepackaged bankruptcy proceeding or a more problematic non-prepackaged – or conventional – bankruptcy, he said.
A conventional bankruptcy case is one in which the debtor files for Chapter 11 relief without having agreed in advance to the terms of a plan of reorganization with its creditors. A pre-packaged bankruptcy involves a plan for financial reorganization that a company prepares in cooperation with its creditors that will take effect once the company enters bankruptcy. This plan must be voted on by shareholders before the company files its petition for bankruptcy, and can result in shorter turnaround times.
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