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Midstates Petroleum Boosts Liquidity by $420M

Distressed oil and gas explorer Midstates Petroleum Co. (MPO) has boosted its liquidity by $420 million through a series of transactions, including raising new second-lien notes and swapping unsecured debt for third-lien debt.

The Tulsa, Okla.-based oil and gas exploration and production company, with operations in Oklahoma, Texas and Louisiana, announced on Thursday, May 21, that it has substantially increased its liquidity.

The company raised $625 million in 10% senior secured second-lien notes due June 1, 2020, through a private offering. The new second-lien notes, which were issued on May 21, will mature on the earlier of June 1, 2020, and 12 months after its revolving credit facility comes due. Wilmington Trust NA is the indenture trustee on the notes, according to filings with the Securities and Exchange Commission.

Midstates Petroleum used the proceeds to fully repay what was outstanding on its revolving credit facility. The company is also using the proceeds for general corporate purposes.

Midstates Petroleum has a $750 million senior secured revolver led by administrative agent SunTrust Bank NA. The company owed $435.2 million on the revolver and had $1.4 million in outstanding letters of credit on the revolver as of March 31.

The borrowing base on the revolver was reduced to $253 million on May 21 from $525 million. The revolving credit facility was also amended to provide the company with additional covenant flexibility, the statement said.

The next borrowing base redetermination is scheduled for October.

The revolver matures on May 31, 2018, and is priced at Libor plus 200 basis points to 300 basis points.

The company also exchanged $279.8 million of its $600 million in 10.75% senior unsecured notes due Oct. 1, 2020, and $350.3 million of its $700 million in 9.25% senior unsecured notes due June 1, 2021, for $504.1 million in new 12% third-lien senior secured notes.

(Midstates Petroleum issued the 10.75% notes on Oct. 1, 2012, and issued the 9.25% notes on May 31, 2013.)

According to Finra's Trace, the 10.75% notes last traded at 48 and the 9.25% notes last traded at 45.25 on Friday.

The new third-lien notes, which were also issued on May 21, bear interest at 10% in cash and 2% pay-in-kind. The third lien-notes mature on the earlier of June 1, 2020, or 12 months after its revolving credit facility comes due.

The company said the exchange was done at 80% of par.

"We view the transaction as a distressed exchange because at the close of the exchange unsecured debt investors received value of less than what was originally promised on the senior unsecured notes," said Standard & Poor's credit analyst Michael Tsai, in a statement on Friday.

Evercore Group LLC was the company's financial adviser on the transactions, and Kirkland & Ellis LLP provided the company with legal advice. The company hired the two firms earlier this year to help review options to improve liquidity and strengthen its balance sheet.

Shaun Finnie, Robert Pacha, Doug Rogers, Steven Becker, Tim Bonstaff and Christoph Schmidt at Evercore and Matt Pacey, Edward Sassower, Josh Sussberg, Lucas Spivey and Andy Veit at Kirkland & Ellis advised the company, The Deal has learned.

Evercore's spokesman declined comment. 

Kirkland's Pacey, Sassower and Sussberg couldn't be reached for comment. Spivey and Veit declined to comment.

"We are very pleased to announce the successful completion of this transaction, which gives Midstates a significant boost to liquidity and enables us to continue to exploit our premier Mississippian Lime asset. We evaluated multiple alternatives and concluded that this comprehensive transaction was the best option for all stakeholders, and will provide the company a substantial runway to prosper in a variety of commodity price environments," said Midstates Petroleum's president and CEO Jake Brace in the statement on Thursday.

In the statement, Brace went on to say that, "Entering 2015, our immediate focus was on delivering operational excellence and strengthening our liquidity and balance sheet. We have been and are continuing to execute on our strategy of exercising capital discipline and maximizing returns. Our outstanding operational performance to date in 2015, coupled with the flexibility this transaction provides, better positions us to maximize the value of our asset base for all our stakeholders."

The company had $100 million in available liquidity, consisting of $12 million in cash and $88 million available to borrow on its revolver as of March 31, according to its most recent financial report, filed with the SEC on May 11.

The company had warned in the financial report that substantial declines in oil and gas prices had impacted its liquidity. Due to the declines in oil and gas prices and the company's substantial debt burden, Midstates Petroleum had cautioned that "forecasted cash and expected available credit capacity will not be sufficient to meet commitments as they come due and, absent a material improvement in oil and gas prices, the company will not be able to remain in compliance with current debt covenants unless able to successfully increase

Accounting firm Deloitte & Touche LLPraised substantial doubt about the company's ability to continue as a going concern on March 16, citing the company's projected debt covenant violation and resulting lack of liquidity.

Midstates Petroleum had $2.27 billion in assets and $2 billion in liabilities as of March 31. The company reported a $193.55 million net loss for the three months ending March 31.

The company's stock, which trades on the New York Stock Exchange, was up over 3.5% midday on Friday at $1.18. The stock closed at $1.14 on May 21.

The company's investor relations contacts Jason McGlynn, Al Petrie and Chris Delange couldn't be reached for comment on Friday.