Connacher Oil and Gas (TSX: CLL) announced late last week a recapitalization plan. In exchange for CAD$350 and USD$550 million of second-lien notes (behind $144 million in first-lien notes and an operating facility), Connacher will give 98% of the equity to the second-lien noteholders. 70% of the noteholders are apparently on board with the proposal.
The noteholders will also have the right to subscribe to another $35 million of second-lien notes.
The company also announced its 2015 projections at WTIC US$49.75/barrel, and it is not pretty: $76 million in losses projected.
Assuming the recapitalization succeeds, shareholders are looking at a 50x dilution of their holdings. The alternative would simply be a zero so there is some value left in the equity.
Clearly the company is uneconomical with existing oil prices and if existing prices continue for the next few years, the company will likely get into financial trouble once again. Not for the faint of heart.
Connacher has a soft spot in my financial heart as their convertible debentures were something I invested in the middle of the financial crisis. They were at around 30 cents on the dollar and I got out in the 90’s a year or two later. They eventually did get redeemed at par on maturity. I have no positions presently.