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Arcan and Aspenleaf deal gets rejected

The real question, both for bond and shareholders: where does Arcan go from here?

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Aug 21, 2014

by Max Fawcett

Arcan Resources (TSXV:ARN) needed the support of both its bond and equity holders in order to proceed with its proposed restructuring. In the end it got neither. “Our proposed agreement with Aspenleaf, developed after a comprehensive series of professional and productive negotiations, provided a viable path forward. We completed a very thorough process that provided extensive opportunity for security-holders to evaluate this proposal, and they chose not to support it,” Arcan chief executive Terry McCoy said in a statement. Now, the struggling junior – whose debt is nine times its annual cash flow – has to find a way to move forward.

Arcan President Doug Penner did an admirable bit of spinning after news of the deal’s rejection, noting that “It’s actually quite interesting that all of the groups think there’s more to keeping the company going than pulling it apart.” The truth of the matter, though, isn’t quite so rosy. In an interview with the Financial Post’s Barry Critchley a few weeks back Aspenleaf CEO Bryan Gould noted that the proposed deal tried to “honour the market.” That deal would have paid out holders of Arcan’s convertible debentures $825 for every $1,000 of face value (and given them 100 warrants on common shares in the new company that would be created with Arcan’s assets) and given equity holders shares in a new company that would own 12.5 per cent of Arcan’s Swan Hills assets, have production of 450 barrels per day and a net asset value of $0.63 per share. It represented a modest premium for both groups, based on where the debentures and the common shares were trading prior to its announcement.

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But that premium wasn’t enough, it seems, to satisfy either group or their valuation of their respective assets. Stornoway Portfolio Management, one of the larger debenture holders and one of many that voted against the deal, has apparently offered to help Arcan come up with a different way to manage its debt load. It’s entirely possible that either Crescent Point Energy or Lightstream Resources (more likely the former, given the fact that the latter already has debt problems of its own without taking on Arcan’s), the company’s two biggest shareholders, could step in and make an offer of their own. But then again, with the 2016 and 2018 convertible debentures hanging over the company’s head, Crescent Point and Lightstream might wait until the price gets even better.

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