13D Filing: Fairfax Financial Holdings and Exco Resources Inc (XCO)

 

1.75 Lien Term Loan Credit Agreement

 

In connection with the offering of the 1.5 Lien Notes, on March 15, 2017, EXCO completed the Second Lien Term Loan Exchange pursuant to the Exchange Agreement. Under the terms of the Second Lien Term Loan Exchange, each exchanging Second Lien Term Loan lender received $1,000 in aggregate principal amount of 1.75 Lien Term Loans for every $1,000 in aggregate principal amount of Second Lien Term Loans tendered by such exchanging lender. In addition, EXCO issued the exchanging Second Lien Term Loan lenders, including certain of the Reporting Persons, at their election, either (i) warrants representing the right to purchase an aggregate 19,833,077 shares of Common Stock at an exercise price of $0.01 per share (the Amendment Fee Warrants) or (ii) approximately $8.6 million in cash as a consent fee for agreeing to certain amendments to the agreements governing the Exchange Term Loan. Certain of the Reporting Persons received Amendment Fee Warrants representing the right to purchase an aggregate of 19,412,035 shares of Common Stock (the Fairfax Amendment Fee Warrants).

 

In addition, pursuant to the terms of the Second Lien Term Loan Exchange, each exchanging lender of the Exchange Term Loan consented to the entry into an amendment to the agreement governing the Exchange Term Loan to eliminate substantially all of the covenants and events of default included therein (the Exchange Term Loan Amendment).

 

As part of the refinancing transactions, certain of the Reporting Persons entered into the 1.75 Lien Term Loan Credit Agreement with EXCO and other parties.  Pursuant to the 1.75 Lien Term Loan Credit Agreement, interest accrues at a cash interest rate of 12.5% per annum and interest will be payable March 20, June 20, September 20 and December 20 of each year, commencing on June 20, 2017.

 

The Fairfax Warrants

 

The Fairfax 1.5 Lien Notes Warrants, Fairfax Commitment Fee Warrants and Fairfax Amendment Fee Warrants are collectively referred to as the Fairfax Warrants. The Fairfax Warrants represent the right to purchase 188,249,067 shares of Common Stock.

 

Subject to certain exceptions and limitations, the Fairfax Warrants may not be exercised if, as a result of such exercise, the beneficial ownership of such holder of such Fairfax Warrant or its affiliates and any other person subject to the aggregation with such holder or its affiliates under Section 13(d) and Section 14(d) of the Exchange Act would exceed the Beneficial Ownership Limitation.

 

Each of the Fairfax Warrants has an exercise term of 5 years from the date that the Requisite Shareholder Approval was obtained and may be exercised by cash or cashless exercise, provided that EXCO may require cashless exercise if the cash exercise of any Fairfax Warrant would negatively impact EXCOs ability to utilize net operating losses for U.S. federal income tax purposes.

 

The Fairfax Warrants are subject to an anti-dilution adjustment in the event that EXCO issues shares of Common Stock or Common Stock equivalents at an effective price per share less than the applicable exercise price of the Fairfax Warrants. In addition, the Fairfax Warrants are subject to customary anti-dilution adjustments in the event of stock splits, dividends, subdivisions, combinations, reclassifications and other similar events.

 

PIK Payments

 

Each of the Indenture governing the 1.5 Lien Notes and the 1.75 Lien Term Loan Credit Agreement allow EXCO, on the terms and conditions described therein, to make PIK interest payments on the 1.5 Lien Notes and the 1.75 Lien Term Loans, as applicable, in shares of  Common Stock, or, in certain circumstances, additional 1.5 Lien Notes or 1.75 Lien Term Loans, as applicable.

 

Under the Indenture and the 1.75 Lien Term Loan Credit Agreement, the price of Common Stock for determining PIK payments is based on the trailing 20-day volume weighted average price as at the end of the Determination Date (as defined in the Indenture or the 1.75 Lien Term Loan Credit Agreement, as applicable). EXCOs ability to make PIK payments in Common Stock under the 1.5 Lien Notes and 1.75 Lien Term Loans is subject to various conditions, including the Beneficial Ownership Limitation.

 

Registration Rights Agreement

 

Simultaneously with the closing of the refinancing transactions, EXCO entered into the Registration Rights Agreement with certain of the Reporting Persons and other parties, pursuant to which EXCO agreed, upon certain terms and conditions, to register the resale of the Common Stock underlying the Fairfax Warrants by September 10, 2017. In addition, the Registration Rights Agreement provides certain incidental piggy-back registration rights, which generally allow the holders of the Fairfax Warrants to participate in registered offerings of EXCOs Common Stock that are initiated by EXCO or on behalf of other holders of EXCOs securities.

 

The foregoing descriptions of the Note Purchase Agreement, the Backstop Fee Letters, the Exchange Agreement, the 1.75 Term Loan Credit Agreement, the Exchange Term Loan Amendment, the Fairfax Warrants and the Registration Rights Agreement do not purport to be complete and are qualified in their entirety by reference to the Note Purchase Agreement, the Backstop Fee Letters, the Exchange Agreement, the 1.75 Term Loan Credit Agreement, the Exchange Term Loan Amendment, the Form of Financing Warrant, the Form of Commitment Fee Warrant, the Form of Amendment Fee Warrant, and the Registration Rights Agreement, copies of which are filed as Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, 10.7, 10.8 and 10.12, respectively, to the Form 8-K and are incorporated by reference herein.

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