According to a Bloomberg report, less than seven months after raising $175 million in a junk-bond offering, American Eagle Energy Corp. recently announced that it wouldn’t make its first interest payment on the debt. Instead, it hired two advisers — Canaccord Genuity Group Inc. and Seaport Global Holdings LLC — to negotiate with bondholders on a plan to restructure its debt.
It appears that the holders of the notes are left to consider how to maximize recovery of their investment, either by giving the company more time to try to become profitable or by pushing it into default.
American Eagle Energy’s first-lien bonds, which are secured by its assets, fell 10.25 cents to 31.75 cents on the dollar at 4:23 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. They traded at par in September.
The oil and gas producer, which operates in North Dakota’s Bakken shale, has 30 days to make the $9.8 million interest payment before triggering a default on the 11 percent bonds due September 2019.
American Eagle Energy’s shares have lost 96 percent since the bonds were issued in mid-August, closing at 20 cents in New York.
According to a statement, American Eagle Energy stopped drilling in November and suspended its 2015 capital plan because of the drop in oil prices.
Here is the exact language of American Eagle Energy’s announcement, take from an SEC filing:
“On March 2, 2015, American Eagle Energy Corporation (“AMZG,” “we,” or “our”) provided an operations update and production guidance for our fourth quarter ending December 31, 2014, capital spending and production guidance, and estimated proved reserves for year-end 2014. We also announced that we (i) deferred the March 2, 2015, semi-annual $9.8 million interest payment in respect of the bonds that we sold in August 2014, (ii) continue to assess our near- and mid-term liquidity, (iii) in consultation with our standard advisors, as well as two newly engaged, experienced investment banks, continue to explore options to strengthen our balance sheet, and (iv) will utilize the 30-day grace period provided in the related bond indenture to determine whether to make the interest payment.”
Given the current state of oil prices, this is likely one of the first oil companies to default on their debt. A number of oil companies recently raised money for operations through so called “junk bond” capital raises. Although junk bonds pay high yield, they also carry higher than average risk that the company will default on the bond.
The White Law Group is investigating the liability that brokerage firm’s may have for recommending this risky investment. Brokerage firms are required to perform adequate due diligence on any investment they recommend and to adequately disclose the risks of any investment. Additionally, brokerage firms are required to ensure that all investment recommendations made are suitable in light of the client’s age, investment experience, investment objectives, net worth, and income.
If it can be demonstrated that a brokerage firm failed to perform adequate due diligence, to properly disclose the risks, or recommended an investment unsuitably, the firm may be held responsible for any resulting losses in a FINRA arbitration claim.
If you suffered losses investing in American Eagle Energy debt and would like to discuss your litigation options, please call the securities attorneys of The White Law Group at 888-637-5510 for a free consultation.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Franklin, Tennessee. The firm represents investors throughout the country in FINRA arbitration claims against their brokerage firm.
For more information on The White Law Group, visit https://www.whitesecuritieslaw.com.