EXCO Resources Inc (EXCE)

[Enterprising Investor]

Two Exco Directors Withdraw From Board Election (5/19/16)

Directors’ decision comes after shareholders WL Ross, Prem Watsa and Bluescape withhold support

By Matt Jarzemsky

Two Exco Resources Inc. directors overseeing the oil-and-gas company's review of bankruptcy and other options won't stand for re-election after several big shareholders pushed for their ouster.

Jeffrey Benjamin and Jeffrey Serota withdrew themselves from voting consideration at the company's request, Exco said in a news release Thursday. The company had received enough votes withholding support for the two directors to compel them to tender their resignations, as required by the company's governance guidelines.

Three of Exco's largest shareholders, WL Ross & Co., a fund affiliated with Canadian insurance magnate Prem Watsa and Bluescape Resources Co., had voted to withhold support for the directors, according to people familiar with the matter.

The persistent slump in natural gas prices has weighed on Exco, whose stock price has fallen 65% over the past year and recently traded at 56 cents. WL Ross is the company's largest shareholder, with an 18% stake as of March 31, according to FactSet. A fund affiliated with Mr. Watsa held 9% as of March 31, while Bluescape owned 6.2% as of Dec. 31.

Exco adjourned its annual meeting, slated for Thursday, to Monday to allow shareholders time to consider the smaller slate of directors. The company announced the formation of the special committee Friday.

The dust-up highlights the often-conflicting motives of shareholders, creditors and company officials of companies in financial distress.

Bankruptcy typically wipes out existing shareholders but allows a company to dramatically cut its debt and renegotiate burdensome contracts. Arguments over the relative merits of cleaning up a company's balance sheet and the potential reputation risk and soured vendor relationships are common as a company weighs bankruptcy.

Complicating matters, the shareholders are well represented on Exco's board. W.L. Ross Chairman Wilbur Ross is an Exco director, and his investment firm helped recruit John Wilder, Bluescape's executive chairman, to serve as Exco's executive chairman, The Wall Street Journal has reported.

Mr. Wilder is well known in the energy industry for reviving Texas power provider TXU Corp. and selling it to private- equity firms in the largest-ever leveraged buyout. The company, now known as Energy Future Holdings Corp., filed for bankruptcy protection in 2014.

Exco has scrambled to position itself for lower commodity prices, retiring debt at a discount to reduce interest costs, winning concessions on bond terms and suspending drilling to cut costs.

But investors are placing long odds on the company's success. Exco bonds due in 2022 recently traded about 26 cents on the dollar, according to MarketAxess, indicating that bondholders think a debt restructuring is likely.

Some 77 North American energy companies have filed for bankruptcy since the start of 2015, according to Houston law firm Haynes and Boone, and more are expected to follow as oil and gas prices remain low.

http://www.nasdaq.com/article/two-exco-directors-withdraw-from-election-20160519-00872