APEG Energy II L.P.

How U.S. Energy Corp. (NASDAQ:USEG) Trimmed Debt By 84%

U.S. Energy Corp. (NASDAQ:USEG)

Shares of U.S. Energy Corp. (NASDAQ:USEG) gained 26.7% after the energy company announced plans to reduce its outstanding debt through an exchange transaction with APEG Energy II L.P. The company’s board of directors has approved the transaction.

U.S. Energy Corp. (NASDAQ:USEG)

Debt Exchange Agreement

Under terms of the agreement, U.S. Energy Corp. (NASDAQ:USEG) will exchange $4.4 million of debt, drawn under its credit facility, for 5,819, 270 shares at a par value of $0.01 a share. Unpaid interest on the credit facility is to be paid in cash at the closing of the transaction.

Completion of the transaction will result in APEG holding approximately 49.9% of the U.S Energy Corp’s outstanding common stock.

“With a transformed and deleveraged balance sheet and an experienced management team like theirs, we see tremendous opportunities for growth and value expansion for both U.S. Energy and Angelus Private Equity Group investor,” APEG in a statement.

USEG Investor Reaction

A move to trim debt went well with investors, as seen by the stock spiking to highs of $1.30 a share before it fell to end Thursday‘s trading at $0.95 a share. However, the stock has underperformed the overall industry and is down by more than 10% for the year.

U.S. Energy Corp. (NASDAQ:USEG)’s Chief Executive Officer, David Veltri, attributes the company’s poor performance to a decline in global commodity prices that has put tremendous pressure on the balance sheet and cash flows. However, he remains upbeat about the energy company’s long-term prospects at the back of the new partnership with APEG

“This Transaction is transformative for U.S. Energy Corp. (NASDAQ:USEG), and, if completed, will reduce the Company’s existing debt by 84% while saving the Company $0.4 million in annual interest payments. We believe that the Transaction is critical to unlocking shareholder value in the Company, restoring access to outside capital and allowing the Company to resume participating in growth,” said Mr. Veltri.

Standstill Agreement

In connection with the Debt Exchange Agreement, U.S Energy Corp has entered into a Standstill Agreement with APEG Energy that will be in effect for one year from the closing of the Transaction. Pursuant to the Standstill Agreement, APEG is required to vote its shares in proportion with the non-APEG shares on all matters. The agreement also includes restrictions that prevent the company from acquiring additional shares of U.S. Energy Corp. (NASDAQ:USEG).

I have no positions in any of the stocks mentioned, and have no plans to initiate any positions within the next 72 hours. All information, including any data, is provided without any guarantees of accuracy.

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About the author: Steve Clark is a 23-year Wall St professional with stints in M&A, risk management, and algorithm trading. Steve keeps his head in the game by looking for, and writing about, small companies that often get overlooked by the big investment firms.