Resaca has received a firm commitment for a new $200 million senior secured revolving credit facility provided by Union Bank, N.A. ("Union Bank"). Union Bank will act as Lead Arranger and Administrative Agent for the New Facility. The New Facility will close in conjunction with the Company's proposed merger with Cano Petroleum, Inc.
Proceeds from the New Facility will be used to repay and refinance Resaca's and Cano's existing debt, to fund future acquisitions and for general corporate purposes, as described in the Company's Form S-4 filled with the U.S Securities and Exchange Commission ("SEC"). The Cano merger is subject to a number of closing conditions, including refinancing of existing bank debt. The commitment for the New Facility is expected to satisfy this closing condition.
The New Facility will be governed by semi-annual borrowing base redeterminations assigned to the Company's proved crude oil and natural gas reserves following the Cano merger. An initial borrowing base of $90 million has been established based on the Company and Cano's combined reserves. Based on values assigned to crude oil and natural gas properties which may be either acquired or discovered over time, the Company's borrowing base may be increased up to a maximum of $200 million.
The maturity date of the New Facility shall be approximately three months prior to the maturity of the Resaca preferred stock issued in the Cano merger. The maturity date of the New Facility shall be extended to the third anniversary of the closing date of the merger once all of the Resaca preferred stock has been converted to common equity or the redemption date thereof has been extended to a date that is at least 91 days after the third anniversary of the closing date of the merger and no default then exists under the New Facility.
All other terms and conditions of the New Facility are those usual and customary for this type of senior revolving facility. The applicable interest rate margin for New Facility will range from LIBOR plus 2.50% to LIBOR plus 3.25% depending on the actual level of outstanding borrowings. The final agreement which includes the specific terms and covenants governing the Company's new bank facility will be filed with the SEC at closing.
Jay Lendrum, Chief Executive Officer, commented, "We are pleased to have received a commitment from Union Bank for this new $200 million revolving credit facility. Not only will this facility provide the refinancing required to satisfy a condition of closing the Cano merger, we believe this facility will position the Company for future growth. We appreciate the work performed by Union Bank to put this new facility into place during a difficult period in the overall financial markets. Having one of the premier lenders to the North American energy industry providing this level of commitment is a testament to senior management's track record with the banking industry, as well as our relationship and Cano's relationship with Union Bank. We believe the new credit facility will allow the Company to make accretive oil and gas property acquisitions following the Cano merger to further our exploitation strategy and enhance shareholder value."
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