Approach Resources Inc. (NASDAQ:AREX) Files An 8-K Announces Strategic Alliance and Deleveraging Transactions

Approach Resources Inc. (NASDAQ:AREX) today announced an agreement to substantially reduce the Company’s long-term debt through exchange transactions anchored by a proven oil and gas industry operator and investor (the “Transactions”). The Transactions were unanimously approved by the Company’s board of directors.

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The Transactions would:

    Reduce the Company’s long-term debt by up to $230.3 million;
    Generate up to $70 million in future interest savings and enhance the Company’s liquidity;
    Provide the Company flexibility to increase its capital budget out of operating cash flow and return the Company to production growth in anticipation of a continued commodity price recovery;
    Increase the Company’s financing and strategic flexibility by removing certain restrictive covenants from the existing Senior Notes indenture;
    Capture a 23% premium to the Company’s November 2, 2016 closing price of $2.70; and
    Align the Company with an investor in an integrated oilfield service business.

The Company has entered into an Exchange Agreement (the “Exchange Agreement”) with Wilks Brothers, LLC and SDW Investments, LLC (together, “Wilks”), entities beneficially owned by the Wilks Family Office and collectively the largest holder of the Company’s 7.00% Senior Notes due 2021 (“Senior Notes”), to exchange $130,552,000 principal amount of Senior Notes, for 39,165,600 new shares of common stock, par value $0.01 per share (the “Common Stock”), representing an exchange ratio of 300 shares of Common Stock per $1,000 principal amount of Senior Notes (the “Initial Exchange Ratio”, and such exchange, the “Initial Exchange”). The Initial Exchange Ratio implies a valuation of $3.33 per share and represents a 23% premium to the closing price of the Common Stock on November 2, 2016. Accrued, unpaid interest on the Senior Notes held by Wilks will be paid in cash at the closing of the Initial Exchange. Immediately following the close of the Initial Exchange, Wilks will hold approximately 48.6% of the outstanding Common Stock of Approach.

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