Bronco Energy Ltd.
TSX : BCF

Bronco Energy Ltd.

April 22, 2009 14:43 ET

Bronco Announces Increase to Its Private Placement Financing and Additional Details

CALGARY, ALBERTA--(Marketwire - April 22, 2009) -

THIS PRESS RELEASE IS NOT FOR DISSEMINATION IN THE UNITED STATES OR THROUGH US NEWSWIRE SERVICES

Bronco Energy Ltd. ("Bronco" or the "Company") (TSX:BCF) announces an increase in its previously announced private placement financing (the "Offering") to $24 million principal amount of Secured Subordinated Convertible Debentures (the "Debentures"). RBC Capital Markets is the exclusive placement agent and financial adviser to the Company for the Offering.

The Debentures will be issued pursuant to the terms of a Debenture Indenture (the "Indenture"), will mature on April 30, 2012 and will bear interest at a rate of 6% per annum (if interest is payable in cash), payable semi-annually in arrears on April 30 and October 31 in each year commencing on October 31, 2009. The Debentures will be convertible into common shares of Bronco, at the option of the holder, at an initial conversion price of $0.50 per share, subject to customary anti-dilution adjustments (the "Debenture Conversion Price"). The Debentures will not be redeemable prior to the maturity date.

Subscribers of Debentures will also receive 1,000 share purchase warrants (the "Warrants") per $1,000 principal amount of Debentures. Each Warrant will entitle the holder to purchase one common share of the Company, at any time prior to April 30, 2014, at an initial price of $0.57 per share, subject to customary anti-dilution adjustments (the "Warrant Exercise Price").

The net proceeds from the Offering will be used for capital expenditures and working capital purposes. "The market's confidence in Bronco enabled us to increase the Offering to $24 million," said Peter Pelensky, CEO of Bronco. "The proceeds will fund the working capital deficiency and fund our planned 2009 capital expenditures to bring on production from the last ten of our 68 wells and upgrade the battery to reduce operating costs. This financing secures a healthy balance sheet for further development of our reserves."

The Offering is expected to close on May 6, 2009 and is subject to certain closing conditions, including the approval of the Toronto Stock Exchange (the "TSX") and the formal consent of Bronco's lender under its senior secured credit facility.

There are currently 38,163,558 common shares outstanding. The Company will issue $24 million of Debentures and 24 million Warrants pursuant to the Offering, resulting in up to 72 million common shares being issuable on conversion of the Debentures and exercise of the Warrants. In addition, the Company will have the option to pay interest on the Debentures by issuing that number of common shares obtained by dividing the amount of interest by 95% of the volume weighted average trading price of the common shares on the TSX. The interest rate on the Debentures will be 7.0% per annum for any interest period in respect of which the interest is payable by issuing common shares. Interest payments on the Debentures may result in the additional issuance of up to 10.6 million common shares (assuming a volume weighted average trading price of $0.50). Assuming the issuance of 72 million common shares on conversion of the Debentures and exercise of the Warrants and the issuance of 10.6 million common shares in respect of interest on the Debentures, an additional 82.6 million common shares will be issued representing approximately 216% of the outstanding common shares.

In the event of a change of control, the Company shall offer to repay the Debentures at 101% of the principal, accrued and unpaid interest and the notional sum of all future interest payments otherwise payable on the Debentures if they were to remain outstanding to maturity. In connection with a change of control and instead of accepting the Company's offer to purchase all Debentures, holders may convert their Debentures and receive (i) in addition to the common shares they are otherwise entitled to receive, an additional number of common shares that will vary depending upon the effective date of the change of control transaction and the share price and (ii) the notional sum of all future interest payments otherwise payable on the Debentures if they were to remain outstanding to maturity. The maximum number of additional common shares issuable as a result of a change of control transaction would result in Bronco issuing an additional 357.7051 common shares per $1,000 principal amount of Debentures, resulting in an additional issuance of 8,584,922 common shares and aggregate dilution of approximately 239%.

The Debentures and the Warrants will contain a weighted average price adjustment ratchet providing that, if at any time while Debentures or Warrants are outstanding the Company issues additional common shares (or securities convertible into common shares) ("Additional Common Shares") in exchange for consideration in an amount per Additional Common Share less than (or having an exercise or conversion price less than) the Debenture Conversion Price, then the Debenture Conversion Price and the Warrant Exercise Price shall be decreased to the respective rate determined by multiplying the Debenture Conversion Price and the Warrant Exercise Price, as applicable, in effect immediately preceding the issuance or sale of such Additional Common Shares by a fraction of which the numerator is the sum of the number of common shares outstanding immediately prior to the issuance of such Additional Common Shares and the number of common shares which the aggregate price of all such Additional Common Shares would purchase at a price per share equal to the Debenture Conversion Price and the denominator is the sum of the number of common shares outstanding immediately prior to the issuance of the Additional Common Shares and the number of Additional Common Shares issued. This adjustment shall not apply to common shares issued on the conversion of the Debentures, common shares issued on exercise of the Warrants or other warrants or options outstanding as of the date hereof, common shares issued on payment of interest as provided above, or up to 5,000,000 common shares issued in connection with arms-length strategic transactions.

Pursuant to the terms of the Indenture, the Company shall be prohibited from incurring additional indebtedness, pledging assets or guaranteeing indebtedness except for certain additional senior indebtedness and unsecured indebtedness, provided such unsecured indebtedness would not prevent the Company from paying interest on the Debentures in cash, when due, or otherwise place the Company in violation of certain financial ratios.

The Company understands that insiders of the Company, including certain directors and officers of the Company and, subject to satisfaction with all documentation, Sprott Asset Management Inc. ("Sprott"), intend to subscribe for $5,560,000 aggregate principal amount of Debentures. Assuming full conversion of the Debentures and exercise of the Warrants to be purchased by insiders, insiders would hold up to an additional 16,680,000 common shares representing approximately 43.7% of the currently outstanding common shares on a non-diluted basis. Assuming full conversion of the Debentures and exercise of the Warrants and together with their current holdings, such directors and officers will hold up to an aggregate of 2,237,223 common shares representing 2% of the outstanding common shares assuming the full conversion of all Debentures and exercise of all Warrants to be issued pursuant to the Offering, and Sprott will hold up to an aggregate of 21,367,500 common shares representing 19.4% of the outstanding common shares assuming the full conversion of all Debentures and exercise of all Warrants to be issued pursuant to the Offering.

The Company understands that, subject to satisfaction with all documentation, affiliates of Wexford Capital LP ("Wexford") intend to subscribe for $9 million principal amount of Debentures. Assuming full conversion of the Debentures and exercise of the Warrants to be purchased by Wexford, Wexford would hold up to 27 million common shares which will represent approximately 24.5% of the outstanding common shares assuming the full conversion of all Debentures and exercise of all Warrants to be issued pursuant to the Offering (Wexford does not currently hold any common shares).

A committee of directors of the Company, free from any interest in the Offering and unrelated to the parties involved in the Offering, has recommended that the Company apply to the TSX for an exemption from the shareholder approval requirements for the Offering. The board of directors has determined that the Company is in serious financial difficulty, the Offering is designed to improve the Company's financial situation, and based, in part, on the recommendation of the committee, the Offering is reasonable in the circumstances.

Under the TSX Company Manual, shareholder approval would be required for the Offering as a result of (i) the number of common shares issuable upon conversion of the Debentures and exercise of the Warrants, in aggregate being in excess of 25% of the currently outstanding common shares of the Company, (ii) the number of common shares issuable to insiders of the Company upon conversion of the Debentures and exercise of the Warrants, in aggregate being in excess of 10% of the currently issued and outstanding common shares of the Company, (iii) the potential for the Offering to have a material effect on control of the Company, and (iv) the weighted average price adjustment ratchet of the Debentures and Warrants. The Company has applied to the TSX for an exemption from the requirement to seek shareholder approval in accordance with Section 604(e) of the TSX Company Manual on the basis of the Company's financial hardship. The TSX has advised Bronco that reliance on this exemption will automatically result in a review to confirm that Bronco continues to meet its listing requirements. Bronco believes that, upon completion of the Offering, it will be in compliance with all of the TSX continued listing requirements.

In addition, due to the participation of issuer insiders in the Offering, the Offering is a related party transaction for the purposes of Multilateral Instrument 61-101 and the Company is relying on exemptions from the formal valuation and minority approval requirements of Multilateral Instrument 61-101, including based on a determination of financial hardship. A material change report will be filed less than 21 days before the closing date of the Offering. This shorter period is reasonable and necessary in the circumstances as the Company wishes to complete the Offering in a timely manner.

This press release is not an offer to sell securities in the United States. Securities may not be offered or sold in the United States in the absence of registration or an exemption from registration.

Forward-Looking Information

Certain statements contained in this document constitute forward-looking statements (the "forward-looking statements"). These statements relate to future events or our future performance. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "budget", "plan", "guidance", "continue", "estimate", "expect", "forecast", "may", "will", "project", "potential", "target", "intend", "could", "might", "should", "believe" and similar expressions. In particular, forward-looking statements herein include, but are not limited to, statements with respect to: the size of the Offering, closing of the Offering, use of proceeds of the Offering, the participation of parties in the Offering and compliance with TSX continued listing requirements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. We cannot guarantee future results, level of activity, performance or achievements. Consequently, there is no representation that the actual results achieved will be the same, in whole or in part, as those set out in the forward-looking statements and information.

With respect to the forward-looking statements, we have made assumptions regarding, among other things: our ability to obtain financing on acceptable terms as required; future performance of our wells and facilities, including the battery; future performance of our drilling rigs and our ability to obtain additional equipment in a timely manner, if and as required; the impact of increasing competition for transportation capacity and supplies; future oil and natural gas production levels from our current and new wells; our ability to market our oil successfully; future capital expenditure levels; future prices and differentials between light, medium and heavy oil prices; and our ability to monetize our other non-core assets; our ability to maintain or increase our credit facility and our ability to obtain financing on acceptable terms as required.

Some of the risks and other factors could cause results to differ materially from those expressed in the forward-looking statements include, but are not limited to: general economic conditions in Canada, the United States and globally; industry conditions, including fluctuations in the prices of oil and natural gas; governmental regulation of the oil and gas industry, including environmental regulation; geological, technical, drilling and processing problems and other difficulties in producing reserves; unanticipated operating events or performance which can reduce production or cause production to be shut in or delayed; failure of our oil processing battery to operate at the expected capacity; failure to install pipeline facilities as and when expected; failure to obtain industry partner and other third party consents and approvals, when required; competition for and/or inability to retain drilling rigs and other services; the availability of capital; the availability of capital on acceptable terms; an adverse revision to the borrowing base under our credit facility; the need to obtain required approvals from regulatory authorities; stock market volatility; volatility in market prices for oil and natural gas; market demand for our non-core assets; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions of reserves, undeveloped lands, skilled personnel and supplies; incorrect assessments of the value of acquisitions; geological, technical, drilling, processing and transportation problems; changes in tax laws and incentive programs relating to the oil and gas industry; failure to realize the anticipated benefits of acquisitions and dispositions; and the other factors described in our public filings (including our annual information form and management's discussion and analysis) available at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this document are expressly qualified by this cautionary statement. We undertake no duty to update any of the forward-looking statements to conform such statement to actual results or to changes in our expectations except as otherwise required by applicable securities legislation.

Contact Information

  • Bronco Energy Ltd.
    Peter J. Pelensky, P. Eng
    President and CEO
    (403) 699-8383
    (403) 693-0038 (FAX)
    or
    Bronco Energy Ltd.
    David Johnson, CA
    VP Finance and CFO
    (403) 699-8383
    (403) 693-0038 (FAX)
    Website: www.broncoenergy.ca