CALGARY, July 19 /CNW/ -- CALGARY, July 19 /CNW/ - Compton
Petroleum Corporation (TSX - CMT) is pleased to announce a
Recapitalization transaction (the "Recapitalization"). The
three-step Recapitalization consists of: (i) the recently announced
and completed asset sales for proceeds of $150.2 million; (ii) an
increase in the borrowing limit and an extension in the term of
Compton's Senior Bank Facility; and (iii) a proposed Plan of
Arrangement (the "Arrangement") under the Canada Business
Corporations Act (the "CBCA") whereby Compton Petroleum Finance
Corporation ("Compton Finance") will exchange all of the
outstanding US$450.0 million 7 5/8% senior notes due 2013 (the
"Senior Notes") for a combination of: - US$193.5 million (the
"Maximum Note Consideration") of Compton Finance 10% senior notes
due 2017 (the "New Notes"); - US$184.5 million of cash; and -
US$45.0 million of Compton Finance 10% senior notes due September
2011 (the "Mandatory Convertible Notes" and the sum of the cash and
the initial principal amount of Mandatory Convertible Notes shall
be the "Maximum Cash/Convert Consideration"). See "Senior Note
Transaction & Information for Noteholders" below for more
information. Under the terms of the Arrangement, if implemented,
all holders of the Senior Notes (a "Noteholder") will have the
right to elect to receive the following for each US$1,000 of
principal amount of Senior Notes held: - US$940, consisting of
US$755.686 of cash and US$184.314 of Mandatory Convertible Notes,
subject to pro rationing based upon the Maximum Cash/Convert
Consideration; or - US$940 of New Notes, subject to pro rationing
based upon the Maximum Note Consideration. If a Noteholder does not
make a valid election, they will be deemed to have elected to
receive New Notes. Accrued interest on the Senior Notes will be
paid in cash on the effective date of the Arrangement. The
following table sets forth the pro forma consolidated
capitalization of Compton as at March 31, 2010, assuming the
completion of the Recapitalization. As at March 31, 2010
------------------------- Actual Pro Forma ------------
------------ (in millions) Long-term debt (including current
portion): Senior Bank Facility(2)....................... $ 90.7 $
140.7(3) Senior Notes(1)(4)............................ $ 448.3 $ -
New Notes(1).................................. $ - $ 180.9(5) MPP
Term Facility............................. $ 50.3 $ 50.3 Working
Capital Deficit(6).................... $ 9.7 $ 9.7 ------------
------------ Total long-term debt (including current
portion)........................... $ 599.0 $ 381.6 Shareholders'
Equity: Mandatory Convertible Notes(1)(7)............. $ - $ 45.7
Shareholders' Equity.......................... $ 1,009.5 $ 1,009.5
------------ ------------ Total
capitalization........................ $ 1,608.5 $ 1,436.8
------------ ------------ ------------ ------------ Number of
Common Shares Outstanding 263.6 263.6(8) ------------ ------------
------------ ------------ (1) Amounts have been converted from
United States dollars to Canadian dollars based on the Bank of
Canada noon buying rate on March 31, 2010, which was Cdn$1.00 =
US$0.9846. (2) Excludes discount to maturity of $1.1 million. (3)
It is anticipated that $50.0 million will be drawn under the Senior
Bank Facility to fund a portion of the Aggregate Cash Proceeds
payable pursuant to the Recapitalization on the effective date of
the Arrangement. (4) Includes discount to maturity of $8.7 million.
(5) Assumes an aggregate principal amount of New Notes equal to
US$193.5 million are issued, with a fair value equal to US$184.5
million, less $6.5 million of transaction costs. (6) Working
Capital Deficit represents current liabilities in excess of current
assets. (7) The Mandatory Convertible Notes with an aggregate
principal amount of US$45.0 million mature on September 15, 2011.
Interest will accrue to maturity at 10% per annum. All amounts
owing at maturity under the Mandatory Convertible Notes will be
redeemed for cash or converted to common shares of Compton based on
95% of the 20-day volume weighted average trading price of the
shares for the period ending on the day that is three days before
the maturity date of the Mandatory Convertible Notes. (8) The pro
forma number of common shares outstanding is dependent upon the
number of shares issued on conversion of the Mandatory Convertible
Notes at maturity, unless redeemed for cash. Management and the
Board of Directors believe that the Recapitalization will provide
the following key benefits to the Corporation: - Additional
improvement in financial strength through debt reduction of
approximately $217.4 million from approximately $599.0 million to
$381.6 million, significantly reducing debt service obligations. -
Reduction in annual cash interest expense of approximately $11.0
million, resulting from lower aggregate debt and a lower average
interest rate on the Senior Credit Facility. - The Corporation's
debt structure will be comprised of bank debt and seven-year notes
as well as Mandatory Convertible Notes. - Compton's banking
syndicate has indicated its support for the Recapitalization by
agreeing, conditional upon the completion of the Arrangement, to an
increase in the Senior Bank Facility to $225.0 million (from $150.0
million previously) and through the addition of two new members to
the syndicate. - The Corporation will be able to turn its full
attention to its asset base, targeting production and cash flow
growth through the internal development of its asset base and
accretive acquisition opportunities. "This transaction is the final
step in the repositioning of our existing capital structure," said
Tim Granger, President and CEO. "Through the Recapitalization, we
will have created a sustainable capital structure. The Arrangement
will complete our Recapitalization, and we can now increase our
focus on our strategic growth plan, delivering shareholder value
from our strong asset base." RECAPITALIZATION DETAILS The
Recapitalization includes the following elements: - The recently
announced and completed asset sales for proceeds of $150.2 million.
- Pursuant to the Arrangement under the CBCA, the exchange of all
of the Corporation's Senior Notes for a combination of cash,
Mandatory Convertible Notes and New Notes. - Upon Recapitalization:
- Compton will issue US$45.0 million of Mandatory Convertible
Notes; - Compton will rebalance its consolidated capital structure,
by reducing the total amount of debt outstanding by approximately
$217.4 million; - The Senior Bank Facility will increase to $225.0
million, comprised of a revolving term facility authorized at
$210.0 million and a revolving working capital facility authorized
at $15.0 million; - The interest margins on the Senior Bank
Facility will be reduced by 0.50% from previous levels; and - The
annual cash interest cost of Compton's consolidated outstanding
debt will be reduced by approximately $11.0 million. Senior Note
Transaction & Information for Noteholders An exchange of all of
the Corporation's Senior Notes for a combination of cash, Mandatory
Convertible Notes and New Notes is proposed to be completed
pursuant to the Arrangement under the CBCA. Under the terms of the
Arrangement, if implemented, all holders of the Senior Notes would
have the right to elect to receive the following for each US$1,000
of principal amount of Senior Notes held: - US$940, consisting of
US$755.686 of cash and US$184.314 of Mandatory Convertible Notes,
subject to pro ration based upon the Maximum Cash/Convert
Consideration; or - US$940 of New Notes, subject to pro ration
based upon the Maximum Note Consideration. Accrued and unpaid
interest with respect to the Senior Notes to the effective date of
the Arrangement will be paid in cash concurrently with the issue of
the New Notes. Assuming full pro ration of the Maximum Cash/Convert
Consideration and Maximum Note Consideration, each Noteholder would
receive, per US$1,000 of Senior Notes, approximately $410 of cash,
$100 of Mandatory Convertible Notes and $430 of New Notes. The New
Notes, with a principal amount of US$193.5 million, will mature on
September 15, 2017. Interest on the New Notes will be 10% per
annum, payable in US dollars semi-annually commencing on March 15,
2011. The other terms of the New Notes will be very similar to the
terms of the Senior Notes and will be described in greater detail
in the Management Proxy Circular described below. The Mandatory
Convertible Notes with a principal amount of US$45.0 million will
mature on September 15, 2011. Interest on the Mandatory Convertible
Notes will be 10% per annum, compounded semi-annually, and will not
be paid in cash but will instead accrue to the principal amount of
the Mandatory Convertible Notes. The Mandatory Convertible Notes
may be redeemed at the option of the Corporation for cash at par
plus accrued and unpaid interest. The proceeds of any equity
offering prior to maturity will be applied to redeem the Mandatory
Convertible Notes. If not redeemed for cash prior to maturity, all
amounts owing under the Mandatory Convertible Notes will convert to
common shares of Compton based on 95% of the 20-day volume weighted
average trading price ("VWAP") of the shares for the period ending
on the day that is three business days before the maturity date of
the Mandatory Convertible Notes. The other terms of the Mandatory
Convertible Notes will be very similar to the terms of the Senior
Notes and will be described in greater detail in the Management
Proxy Circular described below. The Corporation has obtained an
interim order under the CBCA from the Court of Queen's Bench of
Alberta in connection with the Arrangement, including calling a
meeting of Noteholders (the "Meeting") and the mailing of a
Management Proxy Circular to such holders. The meeting date for
Noteholders to vote on the Arrangement has been set for September
14, 2010. The Arrangement will require the approval of two-thirds
of the votes cast by Noteholders present in person or by proxy at
the Meeting and who are entitled to vote on the Arrangement
Resolution. Subject to receiving the required approvals and to
other conditions, it is anticipated that the effective date of the
Arrangement will be on or about September 15, 2010. The record date
for entitlement to notice of the Meeting has been set, subject to
any further order of the Court, as July 19, 2010. At the Meeting,
each Noteholder will have one vote for each $1.00 of principal
amount of Senior Notes as of the Record Date. The deadline for
elections by Noteholders who wish to receive cash and Mandatory
Convertible Notes pursuant to the Arrangement is 5:00 p.m. (New
York time) on September 10, 2010. Such Noteholders must complete
and deliver their Form of Election to their broker or other
intermediary through the facilities of DTC on or before such time.
Any Noteholder who determines not to make an election, does not
properly complete, execute and deliver the Form of Election as
provided in the Management Proxy Circular or does not complete,
execute and deliver the Form of Election prior to the election
deadline, will be deemed to have elected to receive New Notes. A
copy of the Management Proxy Circular providing details of the
Arrangement will be filed with the Canadian securities regulatory
authorities and made available on SEDAR at www.sedar.com, EDGAR at
www.sec.gov and the Corporation's website at
www.comptonpetroleum.com on or about July 26, 2010. The document
will be mailed to Noteholders at that time. Noteholders who hold
their Senior Notes through a broker or other intermediary should
contact such broker or other intermediary in order to obtain a
voting instruction card or valid proxy. Senior Bank Facility
Conditional upon completion of the Arrangement, the bank syndicate
has agreed to: - increase the extendable Senior Bank Facility to
$225.0 million from $150.0 million, comprised of a revolving term
facility authorized at $210.0 million and a revolving working
capital facility authorized at $15.0 million; - reduce the interest
margins by 0.50%; and - change the tenor of the Senior Bank
Facility such that, if not extended at lenders option in 2011, the
undrawn portion of the Senior Bank Facility will be cancelled and
the amount outstanding will convert to a 365 day non-revolving term
facility, which will be required to be repaid on July 2, 2012. In
addition, two additional financial institutions will join the
banking syndicate upon Recapitalization, which exemplifies their
financial support of Compton's strategic plans. Additional
Information Compton's Board of Directors has determined that the
Arrangement is in the best interests of the Corporation and its
shareholders given, among other reasons, that it will reduce net
debt by approximately $217.4 million, significantly improving
Compton's capital structure and providing considerable financial
flexibility. This determination was made based on a range of
factors, including the recommendation of Compton's financial
advisor and outside legal counsel as well as an opinion received
from the Corporation's financial advisor, BMO Capital Markets,
addressed to the Board of Directors of the Corporation, that the
Arrangement, if implemented, is fair, from a financial point of
view, to the Noteholders. The successful implementation of the
Recapitalization is expected to be a significant positive step for
Compton in pursuing its business plan through a renewed focus on
production and cash flow growth. Tim Granger continued: "After a
thorough review of alternatives, we are convinced that it is in all
stakeholders' best interests to implement the Recapitalization at
this time. It provides Noteholders with cash for a portion of their
position and Mandatory Convertible Notes and New Notes, the
aggregate value of which exceeds the value of the current Senior
Notes. Shareholders will continue to have natural gas exposure to
long life reserves, while benefiting from an improved capital
structure. We believe that our capital structure, without the
Recapitalization, would continue to negatively impact market
valuation. Management expects that the Recapitalization will
substantially improve capital markets' confidence in the
Corporation, resulting in a more appropriate market valuation that
properly reflects Compton's overall value." Information for
Shareholders: ----------------------------- The common shares and
shareholders of the Corporation are not directly involved in the
Recapitalization. The legal rights of shareholders are not affected
by the Recapitalization, and there is no requirement for
Shareholders to execute anything at this time. Other
Recapitalization Documentation A copy of the binding agreements to
which the Corporation is a party, the fairness opinion, and certain
related documents will be filed with Canadian securities regulators
and will be available on the SEDAR website at www.sedar.com, EDGAR
at www.sec.gov, and the Corporation's website at
www.comptonpetroleum.com as soon as practicable following their
respective execution. Compliance with the Existing Senior Note
Indenture The trust indenture for the Senior Notes requires that
prior to completing an asset sale in excess of $3.0 million Compton
deliver an officer's certificate to the trustee setting forth the
Fair Market Value (as defined in the trust indenture) of the assets
sold, accompanied, for asset sales in excess of $15.0 million, by a
resolution of Compton's Board of Directors determining that the
consideration received is at least equal to Fair Market Value of
the assets sold. While Compton has provided annual certifications
to the trustee setting forth the Fair Market Value received by
Compton in connection with asset sales, such certifications were
not delivered prior to consummation of such asset sales and were
not accompanied by resolutions of Compton's Board of Directors.
Compton received consideration at least equal to the Fair Market
Value of the assets sold in each of the prior asset sales conducted
by Compton and all proceeds of such asset sales were applied
appropriately in accordance with the covenant in the trust
indenture relating to asset sales. Nevertheless, failure to comply
with the requirement to deliver an officer's certificate and board
resolutions prior to the time of an asset sale may constitute an
event of default that is continuing under the trust indenture for
the Senior Notes. As part of its application for the Interim Order,
Compton has sought and received from the Court a stay of
proceedings in respect of that event of default, pending the
outcome of the Meeting to consider the proposed Arrangement. If the
Arrangement is completed, all rights and obligations under the
trust indenture will be extinguished by order of the Court in
connection with the approval of the Arrangement. Compton has
obtained from the banks under its Senior Bank Facility a waiver of
any cross-default in the Senior Bank Facility created by any event
of default under the trust indenture prior to the date hereof.
Advisories Forward-Looking Statements Certain information regarding
the Corporation contained herein constitutes forward-looking
information and statements and financial outlooks (collectively,
"forward-looking statements") under the meaning of applicable
securities laws, including Canadian Securities Administrators'
National Instrument 51-102 Continuous Disclosure Obligations and
the United States Private Securities Litigation Reform Act of 1995.
Forward-looking statements include estimates, plans, expectations,
opinions, forecasts, projections, guidance, or other statements
that are not statements of fact, including statements regarding (i)
cash flow and capital and operating expenditures, (ii) exploration,
drilling, completion, and production matters, (iii) results of
operations, (iv) financial position, and (v) other risks and
uncertainties described from time to time in the reports and
filings made by Compton with securities regulatory authorities.
Although Compton believes that the assumptions underlying, and
expectations reflected in, such forward-looking statements are
reasonable, it can give no assurance that such assumptions and
expectations will prove to have been correct. There are many
factors that could cause forward-looking statements not to be
correct, including risks and uncertainties inherent in the
Corporation's business. These risks include, but are not limited
to: crude oil and natural gas price volatility, exchange rate
fluctuations, availability of services and supplies, operating
hazards, access difficulties and mechanical failures, weather
related issues, uncertainties in the estimates of reserves and in
projection of future rates of production and timing of development
expenditures, general economic conditions, and the actions or
inactions of third-party operators, and other risks and
uncertainties described from time to time in the reports and
filings made with securities regulatory authorities by Compton.
Statements relating to "reserves" and "resources" are deemed to be
forward-looking statements, as they involve the implied assessment,
based on estimates and assumptions, that the reserves and resources
described exist in the quantities predicted or estimated, and can
be profitably produced in the future. The forward-looking
statements contained herein are made as of the date of this news
release solely for the purpose of generally disclosing Compton's
views of the Plan of Arrangement and Recapitalization transactions.
Compton may, as considered necessary in the circumstances, update
or revise the forward-looking statements, whether as a result of
new information, future events, or otherwise, but Compton does not
undertake to update this information at any particular time, except
as required by law. Compton cautions readers that the
forward-looking statements may not be appropriate for purposes
other than their intended purposes and that undue reliance should
not be placed on any forward-looking statement. The Corporation's
forward-looking statements are expressly qualified in their
entirety by this cautionary statement. About Compton Petroleum
Corporation Compton Petroleum Corporation is a public company
actively engaged in the exploration, development and production of
natural gas, natural gas liquids, and crude oil in western Canada.
Our strategy is focused on creating value for shareholders by
providing appropriate investment returns through the effective
development and optimization of assets. The Corporation's
operations are located in the Deep Basin fairway of the Western
Canada Sedimentary Basin. In this large geographical region, we
pursue three deep basin natural gas plays: the Rock Creek sands at
Niton in central Alberta, the Basal Quartz sands at High River in
southern Alberta, and the shallower Southern Plains sand play in
southern Alberta. In addition, we have an exploratory play at
Callum/Cowley in the Foothills area of southern Alberta. Being in
the Deep Basin, all areas have multi-zone potential, providing
future development and exploration opportunity. Natural gas
represents approximately 84% of reserves and production. Compton's
shares are listed on the Toronto Stock Exchange under the symbol
CMT. %CIK: 0001043572 Susan J. Soprovich, Director, Investor
Relations, Ph: (403) 668-6732, Fax: (403) 237-9410, Email:
investorinfo@comptonpetroleum.com, Website:
www.comptonpetroleum.com; C.W. Leigh Cassidy, Vice President,
Finance & CFO, Ph: (403) 205-5812; Noteholders: BMO Capital
Markets, Financial Advisor, Ph: (416) 359-4275, Toll-free: (877)
741-7262; MacKenzie Partners, Information Agent, Ph: (212)
929-5500, Toll-free: (800) 322-2885
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