TXCO Resources Inc. today announced that on February 26, 2009, in connection with the preparation of its 2008 financial statements, the Company determined that it was in violation of the current ratio covenant (the “Current Ratio Covenant”) in its Amended and Restated Credit Agreement, dated April 2, 2007 and as further amended on July 25, 2007, and Amended and Restated Term Loan Agreement, dated July 25, 2007 (collectively, the “Credit Facilities”), each with Bank of Montreal, as lender and administrative agent, and the other lenders party thereto (collectively, the “Lenders”). The Company believes it is meeting all other covenant requirements under the Credit Facilities.
The Company is continuing discussions with the Lenders regarding a waiver of the Current Ratio Covenant and other arrangements whereby the Lenders would refrain from exercising their rights under the Credit Facilities as a result of the above default. There can be no assurance that the Company will be able to obtain a waiver of the Current Ratio Covenant or obtain other relief from the Lenders.
Under the terms of the Company’s Certificate of Designations, Preferences and Rights of Series D Convertible Preferred Stock and Certificate of Designations, Preferences and Rights of Series E Convertible Preferred Stock (collectively, the "Certificate of Designations"), the above default could result in the holders of the Company’s Series D and Series E Convertible Preferred Stock (collectively, the "Preferred Stock") having a redemption right. However, under the terms of the Certificate of Designations, this redemption right is suspended until all of the Company’s obligations under the Credit Facilities have been satisfied.
The Company continues the strategic alternatives review announced earlier this month. Goldman, Sachs & Co. serves as TXCO’s financial advisor.
The foregoing summaries of the terms of the Credit Facilities and Certificate of Designations do not purport to be complete and are qualified in their entirety by reference to the complete text of the Credit Facilities and the Certificate of Designations.