Current wti Stock Info

W&T Offshore announced early participation results for the company’s tender offer to exchange its 8.5% senior notes due 2019 ($900 million aggregate principal outstanding) for new second lien paid-in-kind (PIK) toggle notes due 2020 and third lien PIK toggle notes due 2021, and equity.

To date, the company has exchanged 78.9% of qualifying notes for a total of $710.2 million.

Under the terms of the early participation agreement, for each $1,000 principal amount of notes tendered, WTI will issue 85.1 shares, $225 principal amount of new second lien notes due ‘20 and $200 principal amount of new third lien notes ’21. In total under the early participation agreement, WTI will issue ~60.4 million shares, ~$160 million second lien notes due ’20, and ~$142 million notes due ’21.

The issuance of equity will have a dilutive effect on the current stock outstanding. Prior to the exchange offer, W&T had 76.6 million shares outstanding, the issuance of roughly 61 million shares will have a dilutive effect of approximately 80% on the stock.

Following the initial announcement of the exchange offer on July 25, 2016, W&T stock fell from a closing price of $2.10 on July 22 to $1.74 on August 1. The relatively small depletion in stock price, in comparison to share dilution, would indicate the market was largely in favor of the move to enhance liquidity.

CapitalOne said in a note about the transaction, “We estimate ~$500MM reduction in debt level if 100% of the existing holders participate in the debt exchange.”

The conversion of debt to equity will enhance the liquidity of W&T. As of June 30, 2016, the company had total debt of $1,345 million. Assuming the numbers from CapitalOne, the proforma debt for the company would be reduced to $845 million.

Toggle notes can defer interest payments

A unique stipulation in the note exchange is the use of PIK toggle notes. A toggle note is where the issuer has the option to defer an interest payment by agreeing to pay an increased coupon in the future. Toggle notes are often used by companies during tough times when cash flow is scarce or strained, as is the case in the oil and gas industry in a depleted price environment. In theory, this would alleviate the stress of interest payments on the company should they choose to defer.

W&T Offshore is an independent oil and gas company operating in the Gulf of Mexico. With 850,000 gross acres and working interests in 54 fields, W&T has been exploring the Gulf of Mexico since the company’s inception in 1983. The company holds 76 MMBoe worth of proved reserves as of year-end 2015 and produced 10,687 Boepd during the second quarter of 2016.

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