MERIDIAN RESOURCE CORP company history: the story so far

History

Meridian Resource borrowed heavily, fell into default on its bank debt in 2009, and was sold in cash to Alta Mesa Holdings in May 2010 at $0.33 per share.

2003-2008: Raising cash and a new credit line

The record opens in 2003 with Meridian paying down debt. In August of that year it sold 8,703,537 shares at $3.87, raising about $33.0 million after costs. On September 12, 2003 it used part of that to repay $24.34 million of its Societe Generale credit facility, leaving $138.32 million, and $7.5 million of its Fortis subordinated debt, leaving $10.0 million. Later that month it replaced its auditor, Ernst & Young, with BDO Seidman LLP. Ernst & Young had declined to bid for the work. Its 2002 report had carried a going-concern doubt, meaning doubt the company could keep operating, and noted a material weakness in internal controls over financial reporting. The filing says there was no disagreement.

On December 23, 2004 Meridian signed an Amended and Restated Credit Agreement with Fortis Capital Corp. as lead agent, with Comerica Bank and Union Bank of California as other agents. It was a $200 million revolving facility, with an initial borrowing base (the amount lenders will lend against its properties) of $130 million. The record then goes quiet until 2009.

2009: Default and forbearance

On April 13, 2009 the lenders told Meridian its borrowing base would fall to $60 million, against $95 million outstanding. The company said it lacked the cash to repay the excess and began talks with lenders, while considering asset sales or new capital. On July 29 it missed a $35 million payment and went into default. That also triggered defaults on its hedging agreements and its CIT drilling rig financing, of about $8 million. Mortgages on producing properties came to secure 95% of proved property value, up from 75%. The company warned it might have to seek bankruptcy protection.

On September 3, 2009 the lenders, the hedge counterparty, CIT and Orion Drilling agreed to hold off on remedies. This was temporary and not a waiver. Meridian paid $2.0 million of principal and still owed $92.5 million, a shortfall of $32.5 million. It also owed monthly payments of at least $1 million plus forbearance fees of about $945,000. The Fortis agreement required a merger, capital infusion or property sale, and in October the deadline was extended four times in quick succession, to October 16. Each time Meridian said it was unlikely to meet it.

2009-2010: The Alta Mesa deal

On December 23, 2009 Meridian announced a merger with Alta Mesa Holdings, LP, a private company, at $0.29 per share in cash. The shareholder-meeting background later disclosed that Alta Mesa had cut its offer from $0.33 to $0.28 on December 16. Lenders extended the Fortis and CIT forbearances to the earliest of May 31, 2010, the merger closing or the agreement ending. The merger carried a $3 million termination fee in specified cases, and Alta Mesa could walk away by paying Meridian $3 million.

On January 11, 2010 Meridian settled Shell's indemnity claims over Louisiana fields it bought in the late 1990s. It agreed to pay $5 million in five annual $1 million installments, convey acreage in Terrebonne Parish and plug and clean up certain wells. Signing this was a condition of the merger. A preliminary proxy filed January 22 showed 92,475,527 shares outstanding and a deal value of $27,173,773, and needed two-thirds of shares to approve. The final proxy set the vote for March 30. On March 23 Meridian agreed in principle to settle shareholder lawsuits, with plaintiffs' fees of up to $164,000 plus a $1,000 incentive award. Two other outside parties had not produced a binding better offer.

2010: Closing

On April 7, 2010 Alta Mesa raised its offer to $0.33 per share. The meeting, adjourned on April 6, was to reconvene April 28. The merger closed on May 13, 2010. Meridian became a wholly-owned subsidiary of Alta Mesa Holdings, and each share became $0.33 in cash, except dissenting shares, which keep appraisal rights under Texas law. NYSE trading ended that day. The exchange filed to delist the shares on May 14, and on August 3, 2010 Meridian terminated its registration, ending its reporting obligations. How the Fortis and CIT debt was treated at closing is not stated in the filings.

Written from the 18 story beats below (2003 to 3 Aug 2010), which come from the company's own announcements and filings.

Beat by beat

The events that changed the company's story, in plain English, each written against everything known about the company at the time. The dot shows whether it was good, bad or neutral for shareholders.

2010

3 Aug
MERIDIAN RESOURCE CORP terminated the registration of a class of securities, ending its reporting obligation for them.
listing compliance notice
14 May
MERIDIAN RESOURCE CORP's exchange filed to remove a class of its securities from listing.
listing compliance notice
13 May
The Alta Mesa merger closed on May 13, 2010: Meridian merged into Alta Mesa Acquisition Sub and became a wholly-owned subsidiary of Alta Mesa Holdings. Each share was converted into $0.33 in cash (the raised price, up from the original $0.29), except dissenting shares, which keep appraisal rights under Texas law. Shareholders no longer have any interest in future earnings or growth, and NYSE trading ended at market close on May 13, with deregistration requested. This completes the merger thread.
asset acquisition disposition
12 Apr
On April 7, 2010, Alta Mesa agreed to raise its cash offer from $0.29 to $0.33 per share through a first amendment to the merger agreement. The special meeting, adjourned on April 6, will reconvene on April 28, 2010. This improves the price shareholders would receive; the filing does not say why the meeting was adjourned (inference: the vote was not yet secured, but the filing does not state this).
business combination
24 Mar
Meridian agreed in principle on March 23, 2010 to settle the shareholder lawsuits (Leider and Rausch, consolidated) challenging the Alta Mesa merger. The settlement depends on shareholder approval of the merger, would dismiss all merger-related claims on behalf of shareholders, and does not change the merger price or terms; defendants would not oppose plaintiffs' counsel fees of up to $164,000 plus a $1,000 incentive award, subject to court approval. The filing also adds background disclosures to the proxy: Alta Mesa cut its offer from $0.33 to $0.28 per share on December 16, 2009, citing market conditions and further due diligence. A third party that gave an indication of interest on February 4 said on March 10 it would not make a binding offer better than Alta Mesa's. A second unsolicited third party (Feb 19) has made no binding offer and told the Chairman it has not been able to arrange refinancing of Meridian's debt. The board still recommends voting for the Alta Mesa merger. This resolves the litigation thread, subject to court approval and the vote.
business combination
8 Feb
Meridian filed its final proxy statement, setting the shareholder vote on the Alta Mesa merger for March 30, 2010 in Houston, with a February 8 record date and mailing from about February 12. Terms are unchanged: $0.29 per share in cash, board unanimously recommending a yes vote, and two-thirds of outstanding shares needed. Shareholders who vote against and follow Texas procedures can seek appraisal of fair value. The text is truncated, so details beyond the cover and summary are not covered here.
business combination
22 Jan
Meridian filed a preliminary proxy statement for the Alta Mesa merger, with the meeting date left blank. It confirms $0.29 cash per share, a board recommendation to vote for, and a two-thirds vote of outstanding shares needed (not voting counts as a vote against). Shares outstanding were 92,475,527, and the filing fee table puts the deal value at $27,173,773. If the merger completes, Meridian will no longer be publicly traded and shareholders will not share in future earnings or growth. This meets the lenders' January 22 proxy filing deadline and moves the merger toward a vote. The text is truncated, so the background and fairness opinion details are not covered here.
business combination
14 Jan
On January 11, 2010 Meridian settled Shell's indemnity claims over Louisiana fields it bought from Shell in the late 1990s: it will pay $5 million in five annual $1 million installments (the first due at the earlier of April 1, 2010 or the merger closing), convey nonproducing Terrebonne Parish acreage, and plug wells and remediate certain acreage. In return Shell releases Meridian from current and historical indemnity claims and from future ones on all but a small subset of properties. Signing this settlement is a condition to closing the Alta Mesa merger, and the lenders moved the deadline for filing the merger proxy statement from January 15 to January 22, 2010.
material agreement

2009

29 Dec
This filing gives the terms of the merger agreement signed December 22, 2009 with Alta Mesa Holdings, LP: Meridian would merge into an Alta Mesa subsidiary and each share would convert into $0.29 in cash (options and warrants get the cash excess over their exercise price, about $0.4 million in total). Closing needs approval of Meridian's shareholders and, for Alta Mesa, no material adverse effect and certain third-party consents; directors and executive officers have agreed to vote in favor. Meridian may owe Alta Mesa a $3 million termination fee plus up to $1 million of expenses in specified cases, and Alta Mesa can walk away by paying Meridian $3 million. Lenders also extended the Fortis and CIT forbearances to the earliest of May 31, 2010, the merger closing or the merger agreement ending (Fortis lenders may end it from Feb 28, 2010 by unanimous consent), which resolves the string of short extensions. The text is cut off partway through agreements with director Joseph Reeves, which it says only clarify his existing net profits interest and grant no new interests.
business combination
23 Dec
On December 23, 2009, Meridian announced a definitive merger agreement under which Alta Mesa Holdings, LP, a privately held company, would acquire it for $0.29 per share in cash. This is the kind of merger deal the lenders' forbearance deadlines were waiting for. If completed, shareholders would receive $0.29 per share in cash, but the filing is only an announcement via press release (not included in the text), so closing conditions, lender treatment and timing are not stated and the outcome is not yet final.
business combination
15 Oct
Lenders extended the deadline once more, from October 14 to October 16, 2009. Meridian again says it is unlikely to sign a qualifying deal by then and cannot assure further extensions.
material agreement
9 Oct
Lenders agreed to extend the deadline for a merger, capital infusion or property sale again, from October 7 to October 14, 2009. Meridian again says it is unlikely to sign such a deal by then and cannot assure further extensions.
material agreement
6 Oct
Lenders extended the deadline for Meridian to sign a merger, capital infusion or property sale from September 30 to October 2, then to October 7, 2009. Meridian says it is unlikely it will sign such a deal by then or meet its obligations, and cannot assure further extensions. Ending the Fortis forbearance would also end the hedge, CIT and Orion forbearance periods.
material agreement
10 Sept
On September 3, 2009 Meridian signed forbearance agreements with its Fortis lenders, hedge counterparty, CIT and Orion Drilling, under which they hold off exercising remedies for the listed defaults. This is temporary and not a waiver, with outside dates around early December 2009. The Fortis agreement terminates September 30 unless Meridian signs a merger, a capital infusion or a property sale covering the borrowing base deficiency. Meridian paid $2.0 million of principal, owes $92.5 million (deficiency $32.5 million), and must make monthly payments of at least $1 million plus about $945,000 in forbearance fees. It also owes about $6.6 million to CIT after a $1 million prepayment, and about $2.0 million of unpaid rig obligations to Orion. The filing text is truncated, so some Orion terms are not covered here.
material agreement
4 Aug
Meridian missed the $35 million payment due July 29, 2009 for the borrowing base shortfall, putting it in default on the Fortis credit facility; this follows the April warning. The default also triggered defaults on hedging agreements and its CIT drilling rig financing (about $8 million owed), and mortgages on producing properties now secure 95% of proved property value, up from 75%. The company says that if it cannot get concessions, lenders could exercise remedies, which could potentially lead it to seek bankruptcy protection.
debt financing
17 Apr
Lenders under the 2004 Fortis credit facility told Meridian on April 13, 2009 that the borrowing base would drop to $60 million effective April 30, against $95 million outstanding. The excess must be repaid within 90 days and the company says it lacks the cash to do so. It is negotiating with lenders (waivers, forbearance, extra security) and considering asset sales or new capital, with no assurance of success. The filing refers to previously disclosed defaults.
debt financing

2004

30 Dec
On December 23, 2004 Meridian entered an Amended and Restated Credit Agreement with Fortis Capital Corp. as administrative agent, with Comerica Bank and Union Bank of California as other agents. It provides a $200 million revolving credit facility with an initial borrowing base of $130 million.
material agreement

2003

30 Sept
Meridian replaced its auditor Ernst & Young with BDO Seidman LLP on September 25, 2003; Ernst & Young had declined to bid for the work. Ernst & Young's 2002 report carried a going-concern doubt and noted a material weakness in internal controls over financial reporting, though the filing says there was no disagreement. The filing also says Meridian sold 8,703,537 shares at $3.87 (about $33.0 million net) in August 2003 and on September 12, 2003 used part of that to repay $24.34 million of its Societe Generale credit facility (leaving $138.32 million) and $7.5 million of its Fortis subordinated debt (leaving $10.0 million).
auditor change