SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: December 31, 1997
PRIDE COMPANIES, L.P.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of Incorporation or Organization)
1-10473 75-2313597
(Commission file number) (I.R.S. Employer Identification No.)
1209 North Fourth
Abilene, Texas 79601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (915) 674-8000<PAGE>
Item 2. Changes in Control of Registrant.
Pride Companies, L.P. ("Pride") has announced the purchase and
assumption by Varde Partners, Inc. ("Varde") of the lenders' rights
and obligations under Pride's previously outstanding bank debt (the
"Old Bank Debt"). In conjunction with Varde's purchase and
assumption of lenders' rights and obligations under the Old Bank
Debt, Pride and BankBoston, N.A. ("BankBoston") executed an
agreement to refinance Pride's letter of credit and revolver
facilities (the "Revolver"), as well as to fund certain term
financing at a future date (the "Proposed Term Loan"), in each case
for a 5-year term. These transactions (the "Transactions") closed
as of December 31, 1997 (the "Closing"). As of the Closing, Varde
and management of Pride Refining, Inc. ("Management") have the
right to receive a total of up to approximately 33.6% of Pride's
common units ("Common Units") as described in Pride's consent
solicitation dated October 7, 1996 (the "1996 Consent
Solicitation"). Varde has proposed additional restructuring of its
investment, subject to receipt of required consents and the
authorization and issuance of additional preferred equity and
consummation of all proposed transactions, that could give Varde
and Management the right to receive a total of up to 52% of Pride's
Common Units provided BankBoston funds the Proposed Term Loan.
Otherwise, Varde and Management would have the right to receive a
total of up to 60% of Pride's Common Units subject to receipt of
required consents and the authorization and issuance of additional
preferred equity and consummation of all proposed transactions.
The Revolver provides for the issuance of letters of credit to
third parties to support Pride's purchase or exchange of crude oil
and petroleum products, in an aggregate amount not to exceed
$65.0 million, with a sublimit of $10.0 million for direct cash
borrowings for general working capital purposes. Amounts available
under the Revolver are subject to a borrowing base calculated as
the sum of Pride's cash and cash equivalents, certain receivables,
deposits, inventory and other amounts, reduced by a portion of
crude oil royalties payable and certain other amounts payable. The
Proposed Term Loan is to refinance that portion of the indebtedness
owed to Varde consisting of the $20.0 million bridge loan made by
Varde and to provide an additional $1.0 million for general
working capital purposes, in each case subject to the satisfaction
of certain conditions precedent.
As of the Closing, Varde assumed the rights and obligations
under the Old Bank Debt, which equaled $45.8 million, and
BankBoston has provided Pride a standby letter of credit facility.
As of the Closing, the Old Bank Debt consisted of (i) a standby
letter of credit facility (the "Old LC Facility"), (ii) a $12.0
million revolving line of credit, of which $6.9 million was
outstanding (the "Old Revolver"), (iii) a $22.1 million term loan
(the "Old Term Loan") and (iv) three series of convertible senior
secured notes in an aggregate principal amount of $16.8 million
(the "Old Convertible Notes," consisting of the "Old Series A
Note," the "Old Series B Note" and the "Old Series C Note"). As of
the Closing, (i) no advances had been drawn under the Old LC
Facilities, which had approximately $36.4 million in outstanding
letters of credit. Pride Refining, Inc., the managing general
partner of Pride (the "Managing General Partner"), and Pride SGP,
Inc., the special general partner of Pride (the "Special General
Partner"), were guarantors of the Old Bank Debt and have guaranteed
Pride's obligations to Varde and BankBoston. Substantially all of
Pride's assets were pledged as collateral for the Old Bank Debt,
and the Special General Partner had pledged its assets at no cost
to Pride as additional collateral for such debt. All of such
assets have been pledged to Varde and BankBoston in connection with
the Transactions.
As of the Closing, Pride also borrowed an additional $4.7
million from Varde for working capital purposes (the "New Loan"),
including fees and costs associated with the Transactions. Pride
is obligated to pay out-of-pocket expenses incurred by Varde of up
to $250,000. As of the Closing, Varde held the following
securities, in order of seniority (collectively, the "Stage 1
Securities"):
(i) Senior Debt A maturing December 31, 2002, representing
the first $20.0 million of Varde's investment, which
would be subject to repayment as early as February 1998
with borrowings under the Proposed Term Loan,
(ii) $9.5 million of Senior Debt B maturing December 31,
2002, which represents certain of the amounts paid to the
banks to purchase the Old Bank Debt plus the amount of
the New Loan and a transaction fee of $500,000 for
bridging the Series A Debt,
(iii) Senior Debt C maturing December 31, 2002 in the amount of
$4.7 million, which represents Old Bank Debt that is not
represented by any other Stage 1 Security,
(iv) Subordinate Note A in the amount of $2.5 million maturing
December 31, 2002, representing the conversion of the Old
Series A Note in accordance with the 1996 Consent
Solicitation,
(v) Series B Preferred equity securities in the amount of
$9.3 million, representing the conversion of the Old
Series B Note in accordance with the 1996 Consent
Solicitation, which Series B Preferred securities are
subject to mandatory redemption at June 29, 2003,
(vi) Series C Preferred equity securities in the amount of
$5.0 million, representing the conversion of the Old
Series C Note in accordance with the 1996 Consent
Solicitation, which Series C Preferred securities are
subject to mandatory redemption at June 29, 2003, and
(vii) Series D Preferred equity securities in the amount of
$2.8 million issued as a result of the increase in the
purchase price of Old Bank Debt, which Series D Preferred
securities are subject to mandatory redemption at June
29, 2003.
Upon consummation of the Proposed Term Loan, the maturity of the
Senior Debt B, Senior Debt C and Subordinate Note A will be
extended to June 30, 2003.
The Senior Debt A will have interest rates of 11% in the first
two years and 13% in the third year, 15% in the fourth and 17% in
the fifth year. The Senior Debt B and Senior Debt C will have
interest rates of 11% in the first three years, 13% in the fourth
year and 15% in the fifth year except $3.0 million of the Senior
Debt B which is subject to interest rates of 12% through maturity.
If Senior Debt A is not repaid with borrowings under the Proposed
Term Loan or otherwise, the interest rates applicable to the Senior
Debt A, Senior Debt B and Senior Debt C would be 11%, 13%, 15%, 17%
and 19% for the first, second, third, fourth and fifth years,
respectively, during all or any portion of the period after
February 1998 that the Senior Debt A is held by Varde, except $3.0
million of the Senior Debt B which is subject to interest rates of
18% through maturity. The interest rate on Subordinate Note A will
be prime plus one percent and, as specified in the 1996 Consent
Solicitation, the preferential quarterly payments on the Series B
Preferred and Series C Preferred will be 6% per annum in the first
three years after issuance, 12% per annum in the fourth and fifth
years and 15% per annum thereafter or may be paid in kind (a
payment in kind or "PIK") at 8% per annum in the first three years,
12% per annum in the fourth and fifth years and 15% per annum
thereafter until mandatory redemption at June 29, 2003. The
preferential quarterly payments on the Series D will be 11% per
annum in the first three years after issuance, 13% per annum in the
fourth and fifth years and 15% per annum thereafter or be made by
PIK through maturity at 13% per annum in the first five years and
15% per annum thereafter. The cash interest payments to Varde are
limited to $1,090,000 annually, excluding cash interest payments on
Senior Debt A. Any excess will be made by PIK. Any payments of
principal on the Stage 1 Securities shall be applied in the
following order: Senior Debt A (if then outstanding), Senior Debt
B, Senior Debt C, Subordinate Note A, Series B Preferred, Series C
Preferred, and Series D Preferred.
In connection with the Transactions, Pride SGP agreed to
reduce the annual rentals on the pipeline (the "Pipeline") leased
by Pride SGP to Pride from $.20 per barrel (which, depending on
throughput, ranged between $800,000 to $1,100,000 annually in
aggregate) to $400,000 annually in aggregate on a subordinated
basis. Pride SGP also agreed with Pride to (i) convert a $2.0
million note of Pride payable to Pride SGP to Series E preferred
equity securities convertible into 4% of the Common Units
outstanding and (ii) convert a $450,000 note owed to Pride SGP into
Series F preferred equity securities. The Series E and Series F
preferred equity securities will be subordinated to the Series B,
Series C and Series D preferred equity securities.
The issuance of the Stage 1 Securities in connection with the
issuance of the Series B Preferred and the Series C Preferred to
Varde resulted in related debt of $36.7 million, which is a
reduction of $9.1 million in the amount of bank debt from the Old
Bank Debt that existed as of the Closing. The Subordinate Note A,
Series B Preferred and Series C Preferred are convertible into
approximately 33.6% of Pride's outstanding Common Units. At the
Closing, Management invested an aggregate of $2.0 million in the
form of a note payable to Varde and will receive a one-third
economic non-directive interest in $6.0 million of the Senior Debt
B, Subordinate Note A, Series B Preferred, Series C Preferred and
Series D Preferred. The note payable to Varde is secured by
Management's interest in such securities. Any cash yield on
Management's share of such securities will be paid to Varde as
interest, net of applicable federal income tax.
In connection with the Transactions and the closing of its
refinery, as discussed below, Pride expects to record an impairment
charge, the amount of which is not presently known, but is expected
to be in the range of $20 to $30 million.
At the second stage of the transaction, expected to be
consummated in February 1998 ("Stage 2"), subject to certain
conditions including the closing of Pride's refinery located near
Abilene, Texas, proceeds of the Proposed Term Loan will be used to
purchase Varde's Senior Debt A for $20.0 million and an additional
$1.0 million in borrowings will be made available for working
capital purposes. Pride plans to close its refinery, and has
agreements in place to receive refined petroleum products from
other sources. At Stage 2, the annual interest and dividend cash
payment to Varde would be reduced to approximately $1,090,000. The
interest expense in excess of this amount will accrue and be paid
as a PIK in the following order: Senior Debt B, Senior Debt C,
Subordinate Note A, Series B Preferred, Series C Preferred and
Series D Preferred. If Varde continues to hold the Senior Debt A
after Stage 2, the interest rates applicable to the Senior Debt A,
Senior Debt B and Senior Debt C would be 11%, 13%, 15%, 17% and 19%
for the first, second, third, fourth and fifth years, respectively,
during all or any portion of the period after February 1998 that
the Senior Debt A is held by Varde.
Varde has proposed additional restructuring of its investment
("Stage 3") that could further reduce Pride's bank debt in
connection with the authorization and issuance of additional
preferred equity, which would in turn be convertible into Common
Units, if approved by the unitholders pursuant to a consent
solicitation on or prior to October 1, 1999 (the "Stage 3 Consent
Solicitation"). Subject to unitholder authorization of additional
preferred equity in connection with the Stage 3 Consent
Solicitation, Varde has agreed to exchange $9.5 million of Senior
Debt B, $4.7 million of Senior Debt C, $2.5 million of Subordinate
Note A, $9.3 million of Series B Preferred, $5.0 million of Series
C Preferred and $2.8 million of Series D Preferred (including any
PIK on these instruments) for the following series of newly
authorized preferred equity:
(i) Units of New Preferred A in the amount of $9.5 million
(including $500,000 of New Preferred A that represents
Varde's transaction fee for bridging the Senior Debt A)
with an interest rate of 12%, which would not be
convertible into Common Units,
(ii) Units of New Preferred B in the amount of $2.5 million
with an interest rate of 5%, which would be convertible
into 10% of the Common Units outstanding, and
(iii) Units of New Preferred C in the amount of $2.5 million
with an interest rate of 5%, which would be convertible
into an additional 42% of the Common Units outstanding,
plus an additional 8% of the Common Units for Varde's
account if the Senior Debt A continues to be held by
Varde.
Any cash yield on Management's share of such securities will be
paid as interest on Management's note payable to Varde, net of
applicable federal income tax. If Management's note payable is
retired and Senior Debt A continues to be outstanding and held by
Varde, any cash yield on Management's share of such securities, net
of applicable federal income tax, will be held in escrow as
collateral for the Senior Debt A until it is retired. Subject to
unitholder approval and the absence of any defaults, Management may
convert its one-third economic share of New Preferred B and New
Preferred C to Common Units at any time after December 30, 1999
(except for the additional 8% of the Common Units that shall be
solely for Varde's account if the Senior Debt A continues to be
held by Varde). During Stage 3, subject to unitholder approval,
Pride SGP will be asked to approve the Pride recapitalization and
convert $1.9 million of claims and the Series E and F preferred
equity securities into a total of 7.5% of the outstanding Common
Units. Any payments of principal on the securities outstanding at
or after Stage 3 shall be applied in the following order: New
Preferred A, New Preferred B and New Preferred C.
Pride or Management has a three-year call on Varde's position
for an amount equal to a 40% return to Varde, subject to a minimum
payment of $7.5 million over Varde's cost. The securities held
by Varde will have antidilution provisions and registration rights.
Any litigation proceeds received by Pride will be used to retire up
to $6.0 million of either Senior Debt A or the Proposed Term Debt,
whichever is then outstanding, and up to $5.0 million of either
Senior Debt B or New Preferred A, whichever is then outstanding,
with any excess divided one-third to Varde to be used to retire
Varde's most senior securities and two-thirds to Pride.
In summary, if all consents are received and all proposed
transactions are consummated, including the restructuring of
certain claims of the Special General Partner and the authorization
and issuance of additional preferred equity, Pride will materially
reduce its debt from amounts outstanding prior to the Transactions.
Stage 2 and Stage 3 are subject to preparation and acceptance of
definitive documentation and certain other conditions, including
the receipt of required consents and the approval of the Stage 3
Consent Solicitation.
Item 7. Exhibits.
99.1 Press Release of Pride dated January 6, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PRIDE COMPANIES, L.P.
By: /GEORGE PERCIVAL/
George Percival
Principal Financial Officer
Date: January 15, 1998
<PAGE>
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
ABILENE, TEXAS, January 6, 1998 -- Pride Refining, Inc., the
managing general partner of Pride Companies, L.P. ("Pride", NYSE:
PRF), has completed its previously announced financial
recapitalization plan.
BankBoston is now providing Pride's letter of credit and
revolver facilities, and has committed, subject to certain
conditions being satisfied, to fund certain term financing at a
future date. In conjunction with BankBoston's commitment, Varde
Partners, Inc. has purchased Pride's present bank debt from
NationsBank.
Both arrangements, which provide five-year financing,
significantly reduce Pride's debt as well as its annual cash
payment requirements, and enhance Pride's financial and
operating flexibility.
Contact: Judy Sharrow
(915) 674-8334
