Business Context and Reporting Period
Company: Comstock Resources, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: August 3, 2018
Event: Entry into a Material Definitive Agreement (Indenture) and creation of a direct financial obligation.
Key Financial Metrics and Transaction Details
- Debt Issuance: $850.0 million aggregate principal amount of 9.75% Senior Notes due 2026.
- Issuer: Comstock Escrow Corporation (wholly owned subsidiary).
- Issue Price: 95.988% of par.
- Interest Rate: 9.75% per annum, payable semiannually (February 15 and August 15).
- Maturity Date: August 15, 2026.
- Security Status: Notes are currently secured by a first-priority security interest in an escrow account holding gross proceeds. Upon satisfaction of release conditions, the Escrow Issuer will merge into the Company, and the Notes will become senior obligations, effectively junior to secured indebtedness.
Material Changes and Conditions
The filing details a complex capital restructuring contingent on specific escrow release conditions. Proceeds are held in escrow until the following conditions are met:
- Closing of the contribution of oil and gas assets by Arkoma Drilling, L.P. and Williston Drilling, L.P. (Jones Partnerships).
- Entry into a new bank credit agreement and consummation of initial borrowings.
- Repurchase and/or redemption of all outstanding "Existing Notes," including various Senior Secured Toggle Notes, Convertible Secured PIK Notes, and Senior Notes due 2019 and 2020.
Contingency: If conditions are not satisfied by October 31, 2018, the Notes are subject to a special mandatory redemption at 100% of the initial issue price plus accrued interest.
Guidance, Outlook, and Covenants
Use of Proceeds: Net proceeds, combined with new credit facility borrowings and cash on hand, will be used to repurchase or redeem the Existing Notes.
Redemption Options:
- Pre-August 1, 2021: Optional redemption at 100% principal plus accrued interest and a "make-whole" premium. Alternatively, up to 35% of principal may be redeemed at 109.750% using equity offering proceeds.
- Post-August 1, 2021: Redemption at prices set forth in the Indenture.
- Change of Control: Holders may require repurchase at 101% of principal plus accrued interest.
Covenants: The Indenture restricts the ability to incur additional debt, pay dividends, repurchase stock, make certain investments, create liens, and engage in mergers, subject to exceptions.
Registration Rights: The Company agreed to file a registration statement for an exchange offer to exchange the Notes for new notes with substantially identical terms, aiming for consummation within 300 days of issuance.
Investor Verification Checklist
- Verify the outcome of the stockholder vote on the Contribution Transaction scheduled for August 10, 2018.
- Confirm the execution of the new bank credit agreement and initial borrowings.
- Monitor the timeline for the repurchase/redemption of the six classes of Existing Notes.
- Assess the risk of the special mandatory redemption if escrow conditions are not met by October 31, 2018.
- Review the full text of the Indenture (Exhibit 4.1) for specific covenant exceptions and qualifications.