Candax Energy Inc.
TSX : CAX

Candax Energy Inc.

December 14, 2010 08:05 ET

Candax Announces Debt Restructuring Plan

TORONTO, ONTARIO--(Marketwire - Dec. 14, 2010) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Candax Energy Inc. ("Candax") (TSX:CAX) announces a proposed comprehensive debt restructuring plan that would involve: (i) an assignment of its existing secured bank debt on amended terms to Geofinance N.V. ("Geofinance"), Candax's major shareholder, (ii) the provision by Geofinance of new working capital, and (iii) the issuance of common shares from treasury to Geofinance (together, the "Debt Restructuring Plan").

Key Terms of the Debt Restructuring Plan

The key elements of the Debt Restructuring Plan are as follows:

  The Bank of Scotland, as sole lender (the "Lender") under Candax's US$45,000,000 bank debt (the "Bank Debt"), will assign all rights and obligations under the Bank Debt to Geofinance (the "Assignment").  
           
  Geofinance has agreed with Candax to restructure the Bank Debt (the "Restructuring Agreement") as follows:  
           
  In consideration for Geofinance converting US$22,000,000 of the US$45,000,000 Bank Debt into equity, Candax will issue common shares equal to US$22,000,000 divided by the previous five-day weighted average market price of the common shares at the time of the issuance (the "Market Price"). The number of shares issued will depend on the market price at the time and on the exchange rate between the US dollar and the Canadian dollar, but the aggregate value of the newly issued shares will be equivalent to US$22,000,000. For example, if the share price and exchange rates at the date of issuance were equivalent to the share price of $0.045 as at close of business on December 13, 2010 and current exchange rates, respectively, Geofinance would receive approximately 492,848,889 new common shares of Candax.  
           
  In consideration for Geofinance waiving the right to receive principal repayment and fee amounts on December 31, 2010 in respect of the Bank Debt, Candax has also agreed to issue that number of common shares equal to US$1,005,000 divided by the Market Price. At the share price and exchange rates current as of close of business on December 13, 2010, Geofinance would receive approximately 22,514,233 new common shares of Candax.  
           
  Geofinance will also convert the existing EUR 2,000,000 shareholder loan (fully drawn on November 26, 2010) into common shares of Candax priced at the Market Price. At the share price and exchange rates current as of close of business on December 13, 2010, Geofinance would receive approximately 59,991,111 new common shares of Candax.
           
  Geofinance and Candax will enter into a restructured and amended loan agreement for the remaining US$23,000,000 debt (the "Amended Loan Agreement") and into a new US$10,000,000 shareholder loan (the "Shareholder Loan"). The Amended Loan Agreement is currently expected to be completed in early January 2011. In the interim, Geofinance, as new lender under the Bank Debt, will waive the requirement for a repayment of US$8,000,000 of the principal sum outstanding to be made on December 31, 2010. The details of the Amended Loan Agreement and of the Shareholder Loan are summarized below.
           
  The Restructuring Agreement is subject to a number of conditions including:  
           
      Candax receiving conditional approval from the Toronto Stock Exchange (the "TSX"), including, but not limited to, the issuance and listing of the new common shares; and  
           
      The completion of the Assignment.  
           
  It is anticipated that, subject to the Debt Restructuring Plan, the Assignment will be completed before December 31, 2010, while the Restructuring Agreement, including the issuance of the new common shares, is expected to close in early January 2011.  

The Amended Loan Agreement

The key terms and conditions of the Amended Loan Agreement are as follows:

  • Principal amount: US$23,000,000.
  • Customary representations, warranties and information undertakings.
  • Secured against the shares of Candax's operating entities.
  • Mandatory prepayments in case of an issuance of new shares or new debt (subject to certain exceptions), a disposal of assets or where Geofinance ceases to own at least 50% of the common shares of Candax.
  • Split into a seven-year, US$15,000,000 senior term loan (the "Senior Term Loan") and an eight-year, US$8,000,000 junior term loan (the "Junior Term Loan"), as described below.

The Senior Term Loan

  • The Senior Term Loan would include two tranches: a US$5,000,000 Tranche A bearing interest at 4% payable in cash and a US$10,000,000 Tranche B bearing interest at 4.5%, paid in kind (interest capitalized).
  • There would be no principal repayment until December 31, 2012, after which time the loan would amortize over a five-year period on a straight line basis.
  • Excess cash flow, subject to specific ratios and thresholds, would be used to accelerate the repayment of the Senior Term Loan after December 31, 2012.
  • The Senior Term Loan would be senior to any other indebtedness of Candax and would be secured by a pledge of the shares of the operating entities of Candax.

The Junior Term Loan

  • The Junior Term Loan would bear interest at 6%, paid in kind (interest capitalized). Candax would also pay Geofinance a cash premium at maturity in order to provide a rate of return of 10% per annum to Geofinance.
  • The Junior Term Loan would be repayable at maturity, with no principal repayment before that time.
  • The Junior Term Loan would be junior to the Senior Term Loan and would be secured by a second lien on the shares of the operating entities of Candax.

The Shareholder Loan

Geofinance would also make available to Candax a US$10,000,000 Shareholder Loan. This loan would have an eight year maturity and would be junior to all existing and future indebtedness. The interest, payable in cash, would be grid-based, with rates between 3.5% and 7.5%, depending on the cumulated drawdown by Candax under the Shareholder Loan. The mandatory prepayments would be substantially similar to those under the Amended Loan Agreement, with the additional right for Geofinance to have the Shareholder Loan either repaid in cash or converted into Candax's shares in case of any future capital increase of Candax and/or any of its subsidiaries or repaid on demand subject to any related future subordination or intercreditor agreements.

Equity issuance under the Debt Restructuring Plan and impact on the shareholding of Geofinance

As highlighted above, if the share price and exchange rates as of the date of issuance are equivalent to the current share price and exchange rates, approximately 575,354,233 new common shares of Candax would be issued to Geofinance under the Debt Restructuring Plan, which 575,354,233 new common shares represent 148% of the currently issued and outstanding common shares. As Geofinance currently owns 220,111,110 shares out of a total of 389,372,716 issued shares of Candax (representing 56.5%), the transaction will have no real effect on the control of Candax. It is anticipated that when the steps of the Debt Restructuring Plan are finalized, Geofinance would own 795,465,343 shares out of a total of 964,726,949 shares of Candax, representing 82.5% of the then-issued and outstanding shares. This percentage will vary depending on whether Candax's share price is above or below $0.045 at the time of issuance. In addition, the exchange rates between the Euro, the US dollar and the Canadian dollar at the time of the issuance of the shares will also impact the number of shares actually issued to Geofinance.

Regulatory Matters

The Debt Restructuring Plan is subject to Candax obtaining TSX approval as Candax will apply to list the common shares issuable under the Debt Restructuring Plan on the TSX. In addition, as the issuance will provide for the issuance of common shares to Geofinance, which is considered an insider of Candax as it holds greater than 10% of the number of common shares of Candax currently issued and outstanding, the rules of the TSX require that, unless an exemption is applicable, Candax obtains approval from the holders of a majority of the common shares of Candax, excluding the votes attached to the common shares held by Geofinance. The rules of the TSX contain an exemption from the requirement to obtain shareholder approval if: (a) a committee of independent members of the board of directors of Candax, free from any interest in the transaction and unrelated to the parties involved, has recommended the Debt Restructuring Plan and (b) the independent members of the board of directors have resolved that Candax is in serious financial difficulty and that the Debt Restructuring Plan is designed to improve Candax's financial condition and is reasonable for Candax in the circumstances.

On December 1, 2010, Candax's board of directors established a special committee consisting of the three independent directors of Candax. These independent directors concluded that Candax is in serious financial difficulty and that the Debt Restructuring Plan is designed to improve Candax's financial condition and is reasonable for Candax given its financial and operating circumstances. The independent directors concluded that Candax is in serious financial difficulty because, even though Candax was able to restart operations from the El Bibane field, if the proposed Debt Restructuring Plan is not completed: (i) before December 31, 2010, Candax will not be able to meet the US$8,000,000 principal repayment and US$1,005,000 fee due to the Lender on that date; (ii) before the middle of January 2011, Candax will not have sufficient liquidity to continue as a going concern and may not be able to meet its liabilities as they become due, regardless of whether the repayments due to the Lender outlined above are waived or postponed; and (iii) there is no timely solution involving any commercial banks canvassed by Candax.

The TSX has advised Candax that reliance on this exemption will automatically result in a TSX review for continued listing to confirm that Candax continues to meet TSX listing requirements, a routine procedure when a listed company applies for this exemption. Candax expects to be able to show that it meets applicable TSX listing requirements following completion of the Debt Restructuring Plan.

In addition to the TSX requirements, the Assignment will require Candax's approval, which means that the Debt Restructuring Plan may constitute a related party transaction for the purposes of Multilateral Instrument 61-101. A related party transaction under such instrument, as under the TSX rules, requires the approval of a majority of the minority shareholders of Candax and a formal valuation and, as such, Candax plans to similarly rely on the financial hardship exemption from the formal valuation and minority approval requirements of such instrument.

Comments

Matthieu Milandri, CFO of Candax, commented: "As previously announced, Candax is currently generating lower cash flows than originally expected. This has led to Candax's inability to meet the payments required to be made to the Lender on December 31, 2010. Following eight months of diligent effort to evaluate and unlock the real value of Candax's assets, this Debt Restructuring Plan is an extremely important step in our efforts to repair Candax and should position Candax with the financial stability required to undertake our plans to redevelop such assets. It will remove all bank debt from Candax's balance sheet, halve Candax's debt position and eliminate any principal repayment for the next two years. Moreover, the interest payments under the Amended Loan Agreement will be materially lower than under the current Bank Debt, as the weighted average interest rate of the Amended Loan Agreement will be 6.3% compared to approximately 8.5% under the existing Bank Debt and only a small portion - interest under the Tranche A of the Senior Term Loan - of these 6.3% will be paid in cash. It is expected that the Shareholder Loan will give Candax the financial flexibility to fund its working capital and capital expenditure programs to accelerate the redevelopment of its assets and create value for all its stakeholders. We appreciate the vote of confidence of Geofinance in Candax's assets, strategy and future."

Thomas Rebilly, Managing Director of Geofinance and Director of Candax, commented: "This Debt Restructuring Plan reflects Geofinance's continuing support of and confidence in Candax. Despite the difficulties encountered during the 2010 capital program on the El Bibane and Ezzaouia fields, Geofinance believes in the long term value of Candax's assets. While the proposed Debt Restructuring Plan may increase Geofinance's shareholding in Candax to more than 80%, Geofinance has no intention to take Candax private and encourages Candax to accelerate ongoing discussions with strategic and financial partners that may acquire shares of Candax in private placements, provide debt facilities or farm into some of its assets."

Candax Energy Inc. is an international energy company with its head office in Toronto and offices in Tunis and Madagascar. The Candax group is engaged in exploration and the production of oil and gas and power generation in Tunisia and holds an interest in an exploration permit in Madagascar.

This press release includes "forward looking statements", within the meaning of applicable securities legislation, which are based on the opinions and estimates of management and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar words suggesting future outcomes or statements regarding an outlook. Such risks and uncertainties include, but are not limited to, risks associated with the oil and gas industry (including operational risks in exploration development and production at El Bibane; delays or changes in plans with respect to exploration or development projects or capital expenditures; the risk that the transactions with Geofinance under the Debt Restructuring Plan may not complete; the ability of Candax to continue to service its debt; the uncertainty of reserve estimates; the uncertainty of estimates and projections in relation to production, costs and expenses; the uncertainty surrounding the ability of Candax to obtain all permits, consents or authorizations required for its operations and activities; and health safety and environmental risks), the risk of commodity price and foreign exchange rate fluctuations, the ability of Candax to fund the capital and operating expenses necessary to achieve the business objectives of Candax, the uncertainty associated with commercial negotiations and negotiating with foreign governments and risks associated with international business activities, as well as those risks described in public disclosure documents filed by Candax. Due to the risks, uncertainties and assumptions inherent in forward-looking statements, prospective investors in securities of Candax Energy Inc. should not place undue reliance on these forward-looking statements.

Contact Information

  • Candax
    Charlotte May
    Corporate Secretary
    416 364 3353
    cmay@candax.com
    or
    CHF Investor Relations
    Jeanny So
    Account Manager
    416 868 1079 ext. 225
    jeanny@chfir.com