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Friday turned out to be a nightmare for Stone Energy Corporation (NYSE:SGY) investors, after the oil and gas company announced a restructuring support agreement (RSA) with certain convertible note holders as the company prepares for a bankruptcy filing.

Stone Energy shares reacted to the news, collapsing nearly 50% in pre-market trading Friday.

“The execution of the RSA is the culmination of months of hard work to right-size our balance sheet in response to a sustained period of low oil and natural gas commodity prices,” said David Welch, Chairman, President and Chief Executive Officer. “The agreement with our Noteholders will provide value to all of our stakeholders, improves our liquidity and better positions us to be profitable during a historically difficult time in our industry.  Importantly, this agreement will allow all stakeholders to share in potential valuation growth if commodity prices improve.”

The RSA will become effective upon (i) execution by the Company and Noteholders holding, in the aggregate, at least 66-2/3% of the outstanding aggregate principal amount of the Notes, and (ii) Stone having entered into a PSA for the sale of Properties, defined below, for a cash purchase price of at least $350 million.  Both conditions have been satisfied, with Noteholders holding approximately 85.4% of the aggregate principal amount of the Notes executing the RSA and Stone signing the PSA, as indicated below. Pursuant to the terms of the RSA and the Term Sheet, Noteholders and other interest holders will receive treatment under the Plan summarized as follows:

  • The Noteholders will receive their pro rata share of (a) $150 million of the net cash proceeds from the sale of Stone’s approximately 86,000 net acres in the Appalachia regions of Pennsylvania and West Virginia (the “Properties“) plus 85% of the net cash proceeds from the sale of the Properties in excess of $350 million, if any, (b) 95% of the common stock in reorganized Stone and (c) $225 million of new 7.5% second lien notes due 2022.
  • Existing common stockholders of Stone will receive their pro rata share of 5% of the common stock in reorganized Stone and warrants for up to 15% of the post-petition equity exercisable upon the Company reaching certain benchmarks pursuant to the terms of the proposed new warrants.
  • All claims of creditors with unsecured claims other than claims by the Noteholders, including vendors, shall be unaltered and will be paid in full in the ordinary course of business to the extent such claims are undisputed.  Stone estimates that such unsecured claims are in the range of approximately $17 million to $27 million in the aggregate.
  • Holders of claims arising on account of Stone’s existing revolving credit facility will receive (a)(i) if such holders vote, as a class, to accept the Plan, commitments on terms set forth on Exhibit 1(a) to the Term Sheet, on a pro rata basis, under an amended revolving credit facility, or (ii) if such holders, as a class, do not vote to accept the Plan (or are deemed to reject the Plan), a term loan on terms set forth on Exhibit 1(b) to the Term Sheet, or (b) such other treatment as is acceptable to the Company and the Noteholders and consistent with the Bankruptcy Code, including, but not limited to, section 1129(b) of the Bankruptcy Code. (Original Source)

On the ratings front, FBR analyst Chad Mabry reiterated a Hold rating on SGY, with a price target of $12, in a report issued on July 6. The current price target implies an upside of 23.8% from current levels. According to TipRanks.com, Mabry has a yearly average return of -17.2%, a 37.5% success rate, and is ranked #4025 out of 4183 analysts.

Stone Energy Corp. is an independent oil and natural gas company engages in the acquisition, exploration, exploitation, development and operation of oil and gas properties. Its operation include the Gulf of Mexico.