PetroQuest Energy Inc. (NYSE: PQ) is commencing private exchange offers and a consent solicitation to Eligible Holders for its outstanding 10% Senior Notes due 2017 ($136 million) and its outstanding 10% Second Lien Senior Secured Notes due 2021 for up to (i) $280.295 million aggregate principal amount of its newly issued 10% Second Lien Senior Secured PIK Notes due 2021, and (ii) 3,517,000 shares of its common stock. The new notes will have substantially identical terms to the 2021 notes, except that the interest on the new notes may be paid, at the option of the company, at the rate of 1.00% per annum in cash and 9.00% per annum in kind (PIK Interest) for the first three interest payments after issuance and is otherwise payable in cash at the rate of 10% per annum.
In connection, the company entered into a commitment letter providing the company with a commitment for a four-year multi-draw term loan facility in the aggregate principal amount of $50 million, subject to certain conditions precedent, including approval by the company's board of directors and the successful consummation of the Exchange Offers and Consent Solicitation whereby at least 87% of the total outstanding aggregate principal amount of the Old Notes exchange for New Notes.
Capital One Securities analyst Richard Tullis provided thoughts in a Friday afternoon energy summary. “Although we don't expect the proposed exchange offer will lower the overall debt level, we view the proposed exchange as a positive given it would ease near-term liquidity concerns by removing the 2017 debt repayment overhang. If the debt exchange is successful, we estimate that PQ could reduce its cash outflow by as much as ~$25MM next year should it elect in-kind interest payments. The $50MM credit facility would also boost liquidity (the company exited 2Q with $69MM in cash) and likely allow PQ to shift its focus to search for a JV partner for development of part of its Cotton Valley acreage. The company reported that it has entered into support agreements with holders of ~79% of the existing notes offered for exchange.”