CanArgo Energy Corp. (fka CANRQ)

[cunning plan]

Officially Worthless

By Jacqueline Palank
Of DOW JONES DAILY BANKRUPTCY REVIEW

CanArgo Energy Corp. (CANRQ) may move forward with its plan to pay off its debts and emerge from Chapter 11 protection as a new company, a bankruptcy court has ruled.
Under CanArgo's restructuring plan, which the U.S. Bankruptcy Court in Manhattan signed off on last week, the company will transfer all of its assets to a new company and will then dissolve. According to court papers, the new entity will then issue new common stock and notes to creditors holding the bulk of CanArgo's $19.8 million debt load.
Specifically, CanArgo's senior lenders will receive new notes in the amount of the $5.4 million in principal and interest that they're owed on existing notes. Senior subordinated lender Persistency, owed $12.6 million, will receive all of the common stock in the new company, subject to dilution.
In addition to issuing new common stock, the new company will also launch a rights offering for its new convertible preferred stock priced at $1 per share. Persistency and CanArgo's general unsecured creditors will be eligible to participate in the rights offering, with Persistency slated to recover 1 share of this stock for every $1 it's owed on the $1.2 million bankruptcy loan it provided to CanArgo.
CanArgo, through its subsidiaries, explores and produces crude oil and natural gas in the former Soviet republic of Georgia. The company filed for bankruptcy in October after a failed rights offering left it "financially crippled."
CanArgo's restructuring plan will address the litigation spawned by the failed rights offering, in which the company sued several parties for not honoring their pledge to buy up to $19.2 million worth of unsold shares in the rights offering. Through a trust established under the plan, CanArgo's lenders would receive the first $7 million of litigation proceeds, while any proceeds above that amount will be distributed to CanArgo's existing common stock holders.
Under the plan, all existing equity interests will be canceled.
(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)
-By Jacqueline Palank, Dow Jones Daily Bankruptcy Review; 202-862-6615; [e-mail]

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(END) Dow Jones Newswires
December 29, 2009 10:50 ET (15:50 GMT)