EXCO begins series of transactions to enhance liquidity

EXCO Resources Inc. (NYSE: XCO) has entered into agreements for a series of transactions that are expected to enhance its balance sheet and increase its financial flexibility as part of its ongoing strategic improvement plan.

EXCO has executed an agreement with subsidiaries of Fairfax Financial Holdings Ltd. to provide a $300 million senior secured second lien term loan. The Fairfax term loan will be issued at par, bears interest at a rate of 12.50% per annum and has a five-year maturity. The company will use the net proceeds of the Fairfax term loan to repay a portion of the borrowings under the company’s amended and restated credit agreement.

EXCO has also entered into agreements with certain unsecured noteholders pursuant to which the noteholders have agreed to become lenders under a new $291 million senior secured second lien term loan (the exchange term loan) in exchange for the company repurchasing $577 million of the noteholders’ senior unsecured notes at an average price of 51% of principal amount. The exchange term loan will be issued at par, bears interest at a rate of 12.50% per annum and has a five-year maturity. EXCO will repurchase approximately $376 million of its 7.50% senior unsecured notes due 2018 (50% of the $750 million outstanding) and approximately $201 million of its 8.50% senior unsecured notes due 2022 (40% of the $500 million outstanding). EXCO has granted Fairfax and the exchange term loan lenders a pari-passu second lien security interest in the same assets.

In connection with the foregoing transactions, EXCO has entered into an amendment to its credit agreement that reduced the borrowing base to $375 million and provided further covenant flexibility. Among other things, the interest coverage ratio has been reduced to 1.25 times from 2.0 times previously, and the total leverage ratio has been removed entirely. The next borrowing base redetermination is currently scheduled for March 2016.

The transactions are expected to close on Oct. 26. Credit Suisse Securities (USA) LLC acted as exclusive restructuring advisor to the company.

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