Exco Resources Nears Deal to Stave Off Bankruptcy -- Update

By Matt Jarzemsky

Exco Resources Inc. is nearing a deal to stave off a potential bankruptcy that could ultimately put some of its creditors in control of the company.

The Dallas-based company plans to sell $300 million in bonds to a group of investors including Fairfax Financial Holdings Ltd., Bluescape Resources Co. and Oaktree Capital Group LLC and use the proceeds to pay down its credit line and fund operations, according to people familiar with the matter.

Providers of the new debt would also receive warrants giving them the option to acquire up to about 55% of Exco at about 90 cents a share, the people said. Exco's stock closed Tuesday at 59 cents and recently traded at around 58 cents.

Exco, like other energy producers, has struggled to regain its footing following a steep drop in oil and gas prices in late 2014. More than 100 North American oil and gas producers have filed for bankruptcy protection since the beginning of 2015, according to Texas law firm Haynes and Boone LLP, and a number of others have cut their debt via out-of-court deals with creditors.

Prices have rebounded, but not enough to restore many energy producers to profitability. Natural gas hit a two-year high on Dec. 28 but has fallen 24% since then.

Exco has more than $1 billion worth of bonds and loans and has reported losses in six of the last seven quarters, according to regulatory filings. The company and its largest shareholder, WL Ross & Co., have sought to help it to ride out the downturn by refinancing debt, overhauling Exco's board and recruiting veteran energy executive John Wilder to serve as chairman. But its options have narrowed as the company's cash and borrowing capacity have declined.

The proposed deal would reduce Exco's debt burden while offering value to creditors at the expense of current shareholders.

The warrants would offer a greater stake in Exco's recovery to creditors such as Fairfax, led by Canadian insurance magnate Prem Watsa, and Bluescape, the investment firm founded by Mr. Wilder, who led Texas utility TXU Corp. through its $32 billion buyout in 2007. Fairfax and Bluescape already own Exco stock and debt.

Current shareholders including WL Ross would be diluted if the debt investors exercise their warrants. WL Ross's founder, distressed investor Wilbur Ross, recently resigned from the firm and from Exco's board to join President Donald Trump's administration as Commerce secretary.

The deal would free Exco from cash interest payments for two years, according to people familiar with the matter. The new bonds may be paid in Exco stock, rather than cash, during that time, the people said. The same would go for a new $700 million loan the company plans to swap for its existing loan of the same size, they said.

Exco also is exploring a sale of energy assets in South Texas, which could fetch about $300 million, the people said.

Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com

(END) Dow Jones Newswires

March 15, 2017 15:12 ET (19:12 GMT)

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