Apr 192013

By Nick Worth
Prospect Global Resources, Inc. announced the successful restructuring of its long-term debt with the Karlsson Group on Tuesday, and company officials noted in a press release that the move advances Prospect Global’s long-term plan to build a potash mine in the Holbrook Basin.
As reported in The Tribune-News on April 10, Prospect Global, parent company of American West Potash, missed a payment of approximately $53.7 million due to the Karlsson Group on March 31 and sought restructuring of its debt with Karlsson.
According to the original Securities and Exchange Commission filing, the missed payment did not constitute a default on the part of Prospect Global until 15 business days following delivery of a written notice of default by the Karlsson Group. The Karlsson Group was joint owner of American West with Prospect Global until June 2012, when the firm sold its half of the company to Prospect Global, which then became sole owner of American West.
“We are very pleased with the outcome of our restructuring efforts,” Damon Barber, Prospect Global’s president and chief executive officer, said in a news release.
In an SEC filing about the Karlsson extension agreement dated last Tuesday, Prospect Global disclosed the outstanding principal balance of the Karlsson Group note as approximately $115.3 million, plus another $12.7 million currently owed Karlsson for accrued unpaid interest and accrued tax gross-ups. In addition, Prospect Global restructured two promissory notes issued to affiliates of Apollo Global Management, LLC to a principal amount of $6.75 million.
The Karlsson note amendment also calls for Prospect Global to make future tax gross-up payments, which compensate the Karlsson Group for increases in federal and state income taxes, and other tax-related matters. The estimated cost of these gross-up payments is approximately $14.6 million.
In addition, the debt maturity was extended to July 2015 and an interim principal payment of $30 million is due Jan. 2, 2015, following the completion of the definitive feasibility study. Prior to the amendment, Prospect Global was required to repay Karlsson with 40 percent of any capital raised. Under the new agreement, that figure has been reduced to 10 percent of any capital raised after $10 million is raised.
The note amendment also calls for Prospect Global to meet interim financing milestones to fund the continued development of the Holbrook Basin project. The company has to raise $5 million by May 15, an additional $7 million by June 15, an additional $18 million by Sept. 10, 2013, and an additional $25 million by Aug. 1, 2014. Also, Prospect Global must deposit $9.2 million of the first $30 million raised into escrow, which can only be released to fund specified development expenses for the Holbrook Basin potash project.
It is also noted that in the original Karlsson Group note, Prospect Global had 15 days to cure a payment default, after which its had 30 days to cure a non-payment default after receiving written notice. Under the new amendment, there are no notice or cure rights for any payment default, defaults relating to the financial milestones or to the escrow funding.
As part of the agreement, Prospect Global has also increased Karlsson’s royalty interest from one percent to two percent, and decreased the royalty interest of Buffalo Management from two percent to one percent. Karlsson’s warrants to purchase 5,065,834 shares of Prospect Global common stock at a price of $4.25 per share were changed to a price of 25 cents per share, and are exercisable on a cashless basis. As collateral, Prospect Global put up 100 percent of its shares and of American West Potash.
Prospect Global also agreed to pay the $275,000 in attorney’s fees and costs associated with the extension agreement.
“The restructuring of our debt marks a significant step forward for the company,” Barber said. “Despite the recent volatility in our stock price, we believe that we are now well positioned to move forward in building long-term value for all shareholders.”