Toronto Stock Exchange: SCS
Common Shares: 84,121,297
CALGARY, May 6, 2013 /CNW/ - Second Wave Petroleum Inc. (TSX:SCS)
("Second Wave" or the "Company") announces that it has entered into an
agreement with Brookfield Bridge Lending Fund Inc. ("Brookfield"), the
Company's controlling shareholder, to issue a $17.5 million principal
amount 7.5% secured convertible debenture (the "Debenture") to meet
immediate capital requirements, and has also received a non-binding
proposal from Brookfield to effect a going private transaction at a
cash price of $0.30 per share, representing a significant premium to
the current market price.
A special committee of independent directors of the Company (the
"Special Committee") has been formed to, among other things, consider
the going private proposal and direct the Company's response. The
Special Committee is evaluating the Brookfield proposal and has
retained an independent financial adviser to assist in that process.
The Special Committee also led the Company's consideration of the
Debenture financing, completion of which is subject to certain
conditions including approval by the Toronto Stock Exchange ("TSX").
The Debenture financing will provide the Company with sufficient new
liquidity to satisfy Second Wave's immediate capital requirements,
$5.0 million required to be repaid to the Company's senior lender for
temporary forbearance in respect of the Company's $90 million operating
loan, on which approximately $87.5 million is currently drawn and which
the lender is reducing to $60 million leaving a $27.5 million
non-conforming portion to be repaid;
approximately $5.8 million due by May 12, 2013 to an industry partner,
failing which the Company faces loss of production revenue from joint
lands until the amount due is recovered; and
approximately $4.6 million for other payables over 90 days past due.
Accordingly, proceeds from the Debenture financing will be used to fund
the immediate $5.0 million repayment to the Company's senior lender and
approximately $10.4 million of overdue payables, and provide the
Company with approximately $2.2 million for near-term working capital
purposes. Brookfield has also agreed to forbear with respect to the
maturity of its existing $15 million secured term loan to Second Wave,
which would otherwise be due and payable on June 14, 2013, subject to
completion of the Debenture financing. No fees are payable to
Brookfield in connection with such forbearance.
Assuming completion of the Debenture financing and use of proceeds as
described herein, the Company's senior indebtedness would consist of
drawings under the $60 million conforming portion of its operating
loan, the remaining $22.5 million non-conforming portion of the
operating loan (after repayment of the $5.0 million described above),
and the $15 million term loan and $17.5 million Debenture payable to
The Debenture will have a three-year term to maturity from the date of
issue and will bear interest, calculated daily and payable monthly on
the last business day of each month commencing May 31, 2013, at a rate
of 7.5% per year. The principal amount of the Debenture will be
convertible, at the holder's option, in whole or in part, at any time
and from time to time during the term, into common shares of the
Company ("Common Shares") at a conversion price of $0.25 per share (the
"Conversion Price"), subject to customary anti-dilution adjustments.
The Company's indebtedness under the Debenture will be subordinate only
to indebtedness to its senior lender, and will be secured by a
second-ranking security interest and floating charge on all of its
present and after-acquired property.
The Conversion Price represents a premium of approximately 92% over the
closing price of the Common Shares on the TSX on May 3, 2013, and a
premium of approximately 71% over the volume-weighted average trading
price of the Common Shares on the TSX for the twenty (20) trading days
ended May 3, 2013.
In the event of a "change of control" event within the meaning of the
Debenture, Second Wave will be required to make an offer to repurchase
the Debenture at a price equal to the greater of (i) 110% of the
outstanding principal amount plus accrued and unpaid interest and (ii)
the aggregate price attributable in respect of such "change of control"
event (based on the greater of the then current market price and the
price per share at which the "change of control" is effected by an
acquirer of Common Shares, as applicable) to the number of Common
Shares issuable upon conversion of the principal amount. The
Brookfield going private proposal would not trigger this requirement.
The Company has agreed to pay Brookfield a one-time commitment fee equal
to 1.0% of the principal amount of the Debenture at closing.
Closing of the Debenture financing is scheduled to occur on May 10, 2013
and is subject to satisfaction of certain conditions including, but not
limited to, TSX approval.
Brookfield is an insider and the controlling shareholder of the Company
through its current holding of 39,925,453 Common Shares representing
approximately 47.5% of the outstanding Common Shares. Assuming
issuance of the Debenture and conversion by Brookfield of the entire
principal amount of $17.5 million at the Conversion Price, Brookfield
will acquire an additional 70,000,000 Common Shares and thereafter hold
approximately 71.3% of the outstanding Common Shares on a non-diluted
basis. The additional 70,000,000 Common Shares would represent an
increase of approximately 83% in the number of Common Shares
outstanding, from 84,121,297 Common Shares outstanding today to
154,121,297 Common Shares outstanding post-conversion.
Under TSX rules, the issuance of the Debenture would ordinarily require
approval of the Company's shareholders (other than Brookfield) on the
basis that the financing will result in the issuance to an insider of a
convertible security entitling the insider to acquire more than 10% of
the outstanding Common Shares. Second Wave has applied to the TSX
pursuant to the "financial hardship" provisions of section 604(e) of
the TSX Company Manual for an exemption from any such shareholder
approval requirement on the basis that the Company is in serious
financial difficulty and the immediacy of its capital needs does not
afford it sufficient time to seek shareholder approval. The TSX is
considering the application in connection with its review of Second
Wave's request for TSX approval of the transaction.
The Special Committee considered the terms of the Debenture financing
and, in the circumstances, recommended that the "financial hardship"
application be made to the TSX. The Special Committee has determined,
and Second Wave's board of directors has unanimously agreed, that the
Company is in serious financial difficulty in light of its immediate
capital requirements, and that the Debenture financing is reasonable
for Second Wave in the circumstances and designed to improve the
Company's financial situation, and represents the only solution
practicably available to Second Wave that will enable it to meet the
immediate capital needs arising out of its current borrowing base
shortfall and working capital deficiency on a timely basis. In making
such determinations the Special Committee members and other directors
had due regard for the outcome of the Company's strategic alternatives
review process completed last year, which was not successful in
providing a solution for Second Wave and its shareholders.
The Company expects that, as a consequence of its "financial hardship"
application, the TSX will place Second Wave under remedial delisting
review, which is normal practice when a listed company seeks to rely on
this exemption. Although the Company believes that it will be in
compliance with all continued listing requirements of the TSX upon
conclusion of a delisting review, no assurance can be provided as to
the outcome of that review and therefore continued qualification for
listing on the TSX.
Issuance of the Debenture also constitutes a "related party transaction"
for the purposes of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101") and is therefore subject to the formal valuation and
minority approval requirements of that regulation, as applicable. The
Company is relying on exemptions from such requirements, which would
otherwise apply in respect of the Debenture financing, that are akin to
the "financial hardship" exemption under TSX rules and are based on the
same determinations of the Special Committee and board of directors
described above regarding the Company's financial position.
Going Private Proposal
Brookfield has also provided the Company with a non-binding proposal
with respect to a going private transaction whereby Brookfield would
offer to acquire each Common Share not already owned by Brookfield and
its affiliates at a price per Common Share of $0.30 (the "Offer
Price"). The proposed Offer Price represents a premium of
approximately 131% over the closing price of the Common Shares on the
TSX on May 3, 2013, and a premium of approximately 105% over the
volume-weighted average trading price of the Common Shares on the TSX
for the twenty (20) trading days ended May 3, 2013. The non-binding
proposal is subject to obtaining a formal valuation in accordance with
MI 61-101, acceptable to Brookfield and Second Wave, and the
negotiation of mutually acceptable definitive documentation.
The going private proposal currently contemplates a plan of arrangement
under the Business Corporations Act (Alberta) as the transaction structure. As such, the transaction would
be subject to, among other things, shareholder approval by not less
than two-thirds of the votes cast by all shareholders at a meeting to
be held for the purposes of considering the arrangement, as well as by
a simple majority of votes cast at that meeting by disinterested
shareholders other than Brookfield, its affiliates and joint actors and
other interested persons pursuant to the minority approval provisions
of MI 61-101. A plan of arrangement would also require the approval of
the Court of Queen's Bench of Alberta.
The Special Committee has retained an independent financial adviser to
prepare a formal valuation for the going private transaction and will
supervise its preparation, and is otherwise evaluating the Brookfield
proposal with the assistance of the independent valuator and
independent legal counsel.
Forward-Looking Statements. This news release contains forward-looking statements as to the
Company's internal projections, expectations and beliefs relating to
future events or circumstances. Forward-looking statements are
typically (but not necessarily) identified by words such as
"anticipate", "believe", "budget", "estimate", "expect", "plan",
"intend", "potential", "may", "will", "should" or similar words
suggesting future outcomes. Although the Company believes that these
forward-looking statements are reasonable, undue reliance should not be
placed on them as they are subject to known and unknown risks and
uncertainties, many of which are beyond the Company's control.
Forward-looking statements are not guarantees of future outcomes. There
can be no assurance that the plans, intentions or expectations
contained in the forward-looking statements or upon which they are
based will in fact occur or be realized, and actual results may differ
from those expressed or implied in the forward-looking statements. The
difference may be material.
Second Wave is subject to the inherent risks associated with the
exploration, development, exploitation and production of oil and gas.
More particularly, material risk factors that could cause actual
results to differ materially from those expressed or implied in the
forward-looking statements contained in this news release include:
adverse changes in commodity prices, interest rates or currency
exchange rates; accessibility of capital when required and on
acceptable terms; lower than expected production of crude oil and
natural gas; production delays; lower than expected reserve volumes on
the Company's properties; increased operating costs; ability to attract
and retain qualified personnel or to secure drilling rigs and other
services on acceptable terms; competition for labour, equipment and
materials necessary to advance the Company's projects; unforeseen
engineering, environmental or geological problems; ability to obtain
all required regulatory approvals on a timely basis and on satisfactory
terms; and changes in laws and governmental regulations (including with
respect to taxes and royalties). This list is not exhaustive. Readers
should also review the risk factors described in other documents filed
by the Company from time to time with securities regulatory authorities
in Canada, including its most recent annual information form, copies of
which are available electronically at www.sedar.com and at www.secondwavepetroleum.com.
Specific forward-looking statements contained in this news release
include statements regarding: the timing and completion of the
Debenture financing, regulatory approvals, use of proceeds, the
Company's future compliance with TSX listing requirements and the
completion of a going private transaction. In making such
forward-looking statements, Second Wave has made various assumptions
regarding, among other things: the satisfaction or waiver of conditions
precedent to the closing of the Debenture financing; the receipt of
necessary regulatory approvals on satisfactory terms and conditions,
including TSX approval on a basis that allows the Company to rely on
the "financial hardship" exemption; the Company's compliance with TSX
listing requirements; and the ability to enter into a definitive
agreement with respect to a going private transaction.
The forward-looking statements included herein are made as of the date
of this news release and Second Wave undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as may be
required by securities laws.
SOURCE: Second Wave Petroleum Inc.
For further information:
Colin B. Witwer, President and CEO
Telephone: (403) 451-0165