NEW YORK: Franklin Square Capital Partners, a money manager whose funds are sub-advised by Blackstone Group LP’s credit unit, is backing a $250 million refinancing deal for Warren Resources Inc. to help the oil-and-gas producer pay down its credit line and pursue acquisitions.
Warren is getting $202.5 million of new money and loans through an exchange with the company’s unsecured bondholders, according to a statement Tuesday. The deal includes a new five-year first-lien term loan that will pay an interest rate of at least 9.5 percent.
A wave of credit-line reductions this year has sent many energy producers racing to raise cash from alternative money managers to keep drilling, while facing the potential for further cuts to their borrowing bases in October. Banks have been scaling back their lending to the industry after the plunge in oil prices diminished the value of reserves that serve as collateral for their loans.
“By paying off our existing first-lien credit line, we gain more flexibility over the terms of our facility, and we will not be subject to the uncertainty of future redeterminations,” Lance Peterson, interim chief executive officer of Warren, said in the statement.
The deal gives Warren $172.5 million borrowed at closing for working capital and to repay its credit line. It also provides a $30 million delayed-draw lending commitment, and $47.2 million of additional first-lien term loans through the exchange of unsecured notes at 65 percent of par.
“Rather than just taking on new debt to provide additional liquidity, we are converting a significant amount of high yield bonds to first lien debt at a favorable discount, while also generating sufficient funding to grow our business,” Peterson said.
The company primarily focuses on oil in the Wilmington field in the Los Angeles Basin in California, and natural gas in the Marcellus Shale in Pennsylvania and Washakie Basin in Wyoming, according to the statement.
Warren’s $300 million of 9 percent unsecured bonds due in 2022 traded at 58.5 cents on the dollar on April 27 to yield 20 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. They’ve dropped to distressed levels after trading above par in August.
