The Lexpert Guides to the Leading US/Canada Cross-Border Corporate and Litigation Lawyers in Canada profiles leading business lawyers and features articles for attorneys and in-house counsel in the US about business law issues in Canada.
Issue link: https://digital.carswellmedia.com/i/522960
22 | LEXPERT • June 2015 | www.lexpert.ca/usguide-corporate/ ity to come, picking up a company that's been hanging on and hanging on. at is one response to distress, fi nally someone comes in and takes me out of my misery." Yet maybe not. Putting the company up for sale, even for a producer willing to give a bit on the valuation, is not always a viable exit strategy. Cline Mining Corp., a metallurgical coal producer, is one of those that found that out the hard way. Coal prices were down so long that Cline suspended produc- tion at its key mine in Colorado to conserve cash while it pursued strategic alternatives, says Jay Swartz, a partner at Davies Ward Phillips & Vineberg LLP in Toronto. " e bondholders tried to sell it, couldn't sell it, and were continuing to incur costs just to maintain the thing in a mothball state," says Swartz, whose fi rm acted for them. " ey fi nally did a plan of arrangement where they paid a bit to the unsecured creditors and some others, and took over 100 per cent ownership of the mine. ey recapitalized it and they're just going to sit on it until the world changes. I think that's typical of a lot of things that are happening in this climate." WHEN IT COMES to restructuring, oil and gas is the sector to watch, says Chambers. Companies tend to have much larger capital expenses than miners and debt is a common part of the Boards facing dwindling reserves of cash have been getting more aggressive in their approach, he says, resulting in increasingly creative attempts to raise capital. "I've seen some term sheets that are a little bit new and strange, to me, in terms of the way people are trying to package assets. We're seeing variations on streaming and other royalty arrangements. People are looking at new products that may have an artifi cial component – it could be a security of a particular issuer but it becomes a call on the underlying commodity price – people are trying to be innovative that way. "I haven't seen many of these kinds of deals done, and there is a certain amount of skepti- cism that they're in the company's interest. ey're probably not a preferred route but it's a situation where some companies are a little bit desperate given how long the downturn has gone on." e problems being experienced across most of the resource sector are potentially fatal for thousands of Canada's junior miners, many of which are single-product, single-mine plays, says Gordon Chambers, a partner at Cassels Brock & Blackwell LLP in Vancouver. "A lot of them are just putting the company on ice and hoping they can survive and pay their listing fees until things pick up. You spend no money on the project and lay everybody off . At the junior end of the market, that's just endemic, most of them are just running on fumes. " e juniors never had any cash fl ow so why would anyone lend them money? ey've got no money to service their debt. at's why they're restricted to equity because their business model doesn't involve the generation of cash — it's fi nding something and selling it off to someone who will actually build something. at's what's so interesting about Canada, we have more junior mining companies than anyone else in the world and they're all entirely equity fi nanced." If commodities prices don't start to bounce up again in 2015, an increasing number will be forced into distress sales, Chambers predicts. "I think there's a lot more of that kind of M&A activ- « RESOURCE DEALS "In exchange for an extension of your debt or waiver of a covenant breach [banks are] charging more fees and piling it on to the debt. So you can end up with a huge pile of debt with your banker sitting there." John Sabine Bennett Jones LLP PHOTO: SHUTTERSTOCK