Amber Kanwar

Anchor, Reporter

Follow|Archive

BNN has learned Pacific Exploration and Production Corp. (PRE.TO)  is very close to making a final decision in its restructuring process.

The board of directors is likely to meet on Wednesday to consider the independent committee’s recommendation, according to a source familiar with the company. The committee will recommend the offer put forth by Catalyst Capital Group, says the person, with the final decision made in a matter of days.

The Catalyst proposal is said to provide $500 million in financing, convert bond holders to equity holders and provide management with an incentive equity portion of the business, according to several sources familiar with Catalyst’s offer.

This comes amidst shareholder uproar about the restructuring process and the potential for management to receive an equity stake while existing shareholders are wiped out. On Friday, a group representing Pacific’s largest shareholder, O’Hara Administration, filed with Colombian regulators to halt the proceedings.

The chief complaint of the group is that the process run by the independent committee was not truly independent. The group says other bidders who offered more-favourable terms to shareholders were turned away.

There are two potential bidders that are still interested in pursuing a transaction, according to a source familiar with the matter. Gran Tierra Energy Inc. (GTE.TO 2.4%) is said to be one of them. Gran Tierra was seeking information from Pacific in order to make its bid, but was rebuffed as Pacific viewed them as a competitor.

The group is also upset about the potential equity incentive for current management. They say it rewards a group that oversaw destruction in equity value over the past year. Last year, O’Hara Administration said it was against a deal that would have taken Pacific Exploration private at $6.50 per share. Pacific is currently trading below $1 per share.

Pacific Exploration said in a statement Monday that the independent committee’s members have no potentially competing interests because none are employees of the company, involved in any of the restructuring proposals, or nominated to the board by a significant shareholder.

Pacific Exploration also pushed back on the notion that management will be “given” equity in the restructured business.

“Neither of the Company’s Executive Co-Chairmen nor any other member of management has a financial interest in any of the proposals,” Pacific said in the statement.

However, it did acknowledge that there would be a “small percentage of equity” in the restructured business that will be granted “over time” and upon achieving agreed “performance metrics.”

A source familiar with other restructuring proposals told BNN that only the Catalyst proposal gave equity incentives to management. Recent proposals by Gran Tierra and Alfa Group, a major Pacific shareholder, did not have provisions for current management, nor did they foresee management continuing with the restructured company, according to the source.

However, a source close to Pacific says Gran Tierra was rebuffed because it could not provide the level of financing that Catalyst was willing to provide. The minimum level of funding required to be considered was $400 million, said the person, based on liquidity models drawn up by Lazard Freres & Co, an advisor to Pacific Exploration. Gran Tierra was only going to provide about $75 million. Catalyst was willing to put up $500 million, according to several people familiar with the matter.

Pacific Exploration and Gran Tierra had no comment when reached by BNN. Catalyst did not respond to request for comment.