Milagro Oil & Gas Inc.’s noteholders have until May 31 to decide if they want to exchange their notes as part of a restructuring effort.

Milagro, a Houston-based oil and gas exploration company, raised concerns about continuing without the threat of liquidation in a May 22 filing with the U.S. Security and Exchange Commission. In the filing, Milagro says that it is exploring alternatives to reduce its debt.

MIlagro was formed in 2005 to acquire, explore for, develop and produce oil, natural gas liquids, and natural gas reserves in the U.S. Gulf Coast. The company’s biggest customers are Shell Trading (U.S.) Co. and Enterprise Crude Oil LLC.

On May 17, Milagro announced that it was launching an exchange offer, under which it would transfer substantially all of the company's assets to Vanquish Energy LLC, a newly-formed company, in connection with the deal.

Under the terms of the exchange offer, holders of 10.5 percent Senior Secured Second Lien Notes due 2016 could exchange their notes for either Class A units of Vanquish and 10.5 percent Senior Secured Second Lien Notes due 2017, or cash up to $65 million. Milagro issued $250 million of the notes in 2010.

If noteholders consent to the deal before May 31, they can decide between cash worth 50 percent of the value of their notes, plus 50 percent of the value in Vanquish units, or cash totaling 75 percent of their notes. Noteholders consenting on May 31 or after can receive cash for 47.5 percent of their note value, plus 47.5 percent of their note value in Vanquish units, or cash worth 70 percent of their note value.

Notes worth at least $237.5 million have to be tendered for the exchange offer to go through.

If the note exchange doesn’t go through, the lender of the 2011 credit facility may accelerate the debt, which could force Milagro into bankruptcy, the company says in SEC filings. Under the terms of the company’s $300 million credit facility from 2011, the maximum leverage ratio of debt to Ebitda it is allowed to have is 4:1. As of March 31, the debt leverage had gone up to 4.64. Milagro is trying to negotiate an amendment to the credit facility regarding the maximum leverage ratio, the company says in SEC filings.

The company’s total debt as of March 31 was $378.96 million.

Milagro's CFO, Robert LaRocque, declined to comment.

For last week's Turnaround Tuesday story, see "Envision Raises Capital to Continue, Amid Challenging TIme for Solar Panel Makers."

For a list of distressed companies, see Mergers & Acquisitions Distressed Company Watch List

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