New York-based Ares Management has agreed to a $425 million refinancing deal with Gastar Exploration that will let the Houston-based oil and natural gas exploration company continue developing its North American reserves.
Gastar would be able to access a $250 million first secured loan, $125 million second lien secured convertible notes, and a $50 million common stock issuance, according to a statement.
Gastar plans to use the transaction proceeds to repay $325 million senior secured notes and a $70.4 million revolving credit facility. The final closing of the Ares transaction is expected this month.
Russell Porter, Gastar president and chief executive officer, said in a statement the refinancing will allow the company to profit on assets in the oil and natural gas-rich area of central Oklahoma, known as STACK. Gastar has already drilled and completed eight wells for oil extraction in that region and has another eight in the works.
Porter said that the drilling activity and “the potential conversation of the $125 million secured convertible notes” from Ares will help the firm in “de-levering our balance sheet.”
The secured convertible notes would be priced at 6 percent, pending stockholder approval of Ares’ ability to convert the debt to equity. If that approval does not happen within the required four months the notes may bear interest at up to 15 percent.
The transaction agreement also granted Ares the right to nominate up to two directors to the energy company’s board, subject to certain minimum stock ownership requirements.
Ares’ Nate Walton and Ronnie Scott will join Gastar's board of directors, according to the statement. Their additions expand the board to eight members.
Gastar's total energy reserves amounted to 25.6 million barrel of oil equivalents (BOE) at the end of last year, comprised of 54 percent oil, 25 percent natural gas, and 21 percent natural gas liquids, according to the statement. The estimated present value of its reserves was $141.3 million.
Ares Management and its affiliates managed approximately $97 billion in assets as of 30 September, according to its website.