Rights offerings in energy sector gain popularity, draw scrutiny

Energy businesses that are trying to exit bankruptcy are finding a savior in some of their own creditors, which have been scooping up newly issued stock from the companies at hefty discounts.

More than a dozen so-called rights offerings have raised billions of dollars over the past 18 months, according to data compiled by Reuters, to help revitalize these energy companies in return for large fees and juicy investment returns.

But those benefits have not been equally shared among all the creditors providing the cash. The deals are coming under increasing scrutiny by creditors and shareholders in some bankrupt companies over how to divvy the returns, and whether these companies should be looking for a different strategy altogether.

In the past year, coal producer Peabody Energy Corp., oil and gas producer Ultra Petroleum Energy and oilfield service provider Basic Energy Services are among companies that have raised a combined $3.6 billion through rights offerings.

 

The company gets to exit bankruptcy flush with cash and often virtually debt-free. The hedge funds gain sizeable stakes in the company, and benefit if the stock rises in value.

In the case of a rights offering from renewable energy firm SunEdison, a U.S. Bankruptcy judge in Manhattan overruled objections from creditors CNH Partners LLC and AQR Capital Management LLC who said the solar power developer’s proposed $300 million rights offering was aimed at locking up votes from creditors such as Centerbridge Partners.

Maryland Heights-based SunEdison said the new funding was necessary for the reorganization.

Read more: St. Louis Post-Dispatch


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