To facilitate the pricing of the company’s $175 million convertible notes issued in December 2006, Goodrich Petroleum entered into a share-lending agreement pursuant to which approximately 3.1 million shares of Goodrich common stock was issued to Bear Stearns International with an obligation to return the shares upon maturity or prepayment of the convertible notes.
As a result of the recent long-term ratings downgrade of The Bear Stearns Companies and affiliates by Standard & Poor’s, Bear Stearns has returned 1.5 million of the 3.1 million borrowed shares and fully collateralized the remaining 1.6 million borrowed shares with a cash collateral deposit of approximately $41.3 million, the market value of the remaining borrowed shares.
Under the share-lending agreement, Bear Stearns is required to maintain collateral value in an amount at least equal to the market value of the outstanding borrowed shares.
Goodrich Petroleum also entered into capped call agreements in December 2007 with each of Bear Stearns International and an affiliate of JP Morgan Securities in conjunction with a public offering of the company’s common stock offering at that time. The company purchased from each of the Bear Stearns and JP Morgan affiliates capped call options on 2.9 million shares of GDP stock, whereby each of Bear Stearns and JP Morgan will have the obligation to return to GDP a certain number of GDP’s shares at various dates 18, 24 and 30 months from the original date of the transaction, depending on the value of GDP stock at those points in time.
Bear Stearns is obligated, by virtue of a letter agreement, to transfer their rights and obligations under the capped call agreement to a suitable counterparty within 30 days. The company said that the obligations have not been transferred but discussions are underway.
