Stornoway Portfolio Management Votes AGAINST Arcan Resources Arrangement with Aspenleaf

  • The Aspenleaf Proposal results in approximately $30 million of value transferred from Arcan's debentureholders to its shareholders
  • It violates the fundamental rights of creditors to be repaid in full prior to any payment being made to shareholders
  • If the Aspeleaf Proposal is rejected, Stornoway is prepared to work with Arcan and its stakeholders on an alternate proposal for the benefit of all security holders

TORONTO, Aug. 7, 2014 /CNW/ - Stornoway Portfolio Management Inc. ("Stornoway") announced today that it has voted AGAINST the currently proposed arrangement between Arcan Resources Ltd. ("Arcan") and Aspenleaf Energy Limited ("Aspenleaf") in which Aspenleaf would acquire 87.5% of Arcan's assets. The remaining 12.5% of Arcan's assets would be owned by a new company called Miura Energy Ltd. ("Miura"), that would be co-owned as to 6.7% by Aspenleaf and 93.3% by Arcan's current shareholders (the "Aspenleaf Proposal").

The Ravensource Fund and The Stornoway Recovery Fund LP, both managed by Stornoway, have significant investments in Arcan's Convertible Unsecured Subordinated Debentures (the "Debentures"). Stornoway has repeatedly expressed its concerns about the Aspenleaf Proposal, both publicly and privately, in an as-yet unanswered letter to the Chairman of Arcan's board sent immediately upon Arcan's initial press release announcing the transaction, and in direct communications  with Arcan's President and Aspenleaf's CEO.

Stornoway has voted against the Aspenleaf Proposal for reasons that include the following:

  • The Aspenleaf Proposal is entirely dependent on the Debentureholders' willingness to forego their legal right to be repaid in full by Arcan at a time when, based on all valuations, Arcan has the financial capacity to honour its obligations.
  • The Aspenleaf Proposal violates a basic and sacrosanct capital markets principle that prioritizes the repayment of debt obligations before paying holders of equity. It also runs contrary to the trust indenture under which the Debentures were issued.
  • Stornoway invested in Arcan's Debentures on the entirely reasonable expectation that Arcan would repay principal in full in the event that the company was sold to another party.
  • Instead, Arcan's Debenturesholders are being asked to transfer approximately $30 million of value to its shareholders by accepting a 17.5% haircut to what they are owed under the Debentures.
  • Stornoway's believes that there are solutions available to address Arcan's balance sheet challenges without opportunistic third-party intervention like the Aspenleaf Proposal.

Stornoway will work constructively with Arcan and its stakeholders to develop an alternative solution to repair its capital structure.

  • Stornoway acknowledges that Arcan has too much debt and that cash flow is being diverted to paying interest rather than growing the business.
  • The Aspenleaf Proposal, in effect, unfairly shifts the burden of corporate accountability for Arcan's current financial condition from the board and management, where it legally and properly resides, to Arcan's Debentureholders.
  • The Aspenleaf Proposal itself, through its inherent valuation of Arcan, firmly establishes that the fair market value of Arcan's assets is more than sufficient to allow Arcan to meet its obligations to its Debentureholders in full, with some value left over for shareholders.

There are internal solutions to Arcan's debt burden, that require proactive consultation with key stakeholders to improve the company's financial condition. A proposal conceived without stakeholder consultation, imposed on stakeholders who are being asked to forgo their rights, and delivered to stakeholders through a company-sponsored campaign of fear, is not the answer.

Stornoway Portfolio Management

Stornoway Portfolio Management Inc. is an employee-owned asset management firm located in Toronto, Canada. Stornoway's investment team has extensive experience investing in and restructuring companies that are in financial distress. Stornoway takes a solution-oriented approach and has a successful track record of working with management teams and fellow stakeholders to inject the necessary capital, time and energy to fix the root cause of financial distress, unlocking stakeholder value in the process.

SOURCE: Stornoway Portfolio Management Inc.

For further information:

Stornoway Portfolio Management Inc.,
Scott Reid, President


Bayfield Strategy, Inc.
Riyaz Lalani
(416) 907-9365

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Stornoway Portfolio Management Inc.

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