/NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER UNITED STATES NEWS WIRE SERVICES/

CALGARY, Nov. 20, 2015 /CNW/ - (TSX: PMT; PMT.DB.E) – Perpetual Energy Inc. ("Perpetual", the "Company" or the "Corporation") announces recapitalization transactions (the "Recapitalization Transactions") that involve:

• A $25 million fully backstopped rights offering (the "Rights Offering");
• A new financing arrangement that provides the Company with $18.2 million of additional liquidity collateralized by one million shares of Tourmaline Oil Corp. ("Tourmaline Shares");
• Extension of the Company's current bank lending arrangements to October 31, 2016 and providing for total borrowing capacity of $62 million, comprised of a $20 million demand loan and a $42 million margin loan secured by 5.5 million Tourmaline Shares; and
• Settlement of 7.00% convertible debentures due December 31, 2015 (the "Convertible Debentures") with common shares of Perpetual (the "Common Shares").

The Recapitalization Transactions will reduce pro forma debt by $55 million, extend the term of the Company's earliest maturing debt to October 31, 2016, provide additional liquidity for ongoing capital programs and manage downside risk while allowing for retention of potentially undervalued assets in the current low commodity price environment.  The Recapitalization Transactions provide a number of benefits consistent with Perpetual's top strategic priorities by:

• Providing the Corporation with a stronger financial foundation and capital structure to operate within the current uncertain commodity price and operating environment;
• Reducing total indebtedness and annual interest expense by $55 million and $3.3 million respectively;
• Providing new equity capital to be contributed towards Perpetual's 2016 capital program; and
• Preserving the Corporation's portfolio of strategic assets for future growth, including its East Edson asset in west central Alberta and the ownership of 6.5 million Tourmaline Shares.

"The Recapitalization Transactions materially reduce our current indebtedness, extend the term of our earliest maturing debt and provide additional liquidity for a focused capital program in 2016." said Sue Riddell Rose, President and CEO of Perpetual.  "An independent committee of the Board of Directors has determined that these transactions best position Perpetual with a stronger financial foundation in the context of the current low commodity price and uncertain operating environment."

In considering the Rights Offering and the repayment of the Convertible Debentures in Common Shares (together, the "Equity Transactions"), the Board of Directors retained a financial advisor and appointed an independent committee (the "Independent Committee"), comprised of the Corporation's independent directors.  The Independent Committee engaged its own financial advisor to provide it with an assessment of the value of the Company on a pre and post Equity Transactions basis and a financial fairness opinion (the "Fairness Opinion") with respect to the Equity Transactions.

Based on, among other things, the recommendation of the Independent Committee, including the advice and Fairness Opinion of the Independent Committee's advisor, and the views of the management of the Company and its financial advisor, the Board of Directors determined (with Mr. Riddell and Ms. Riddell Rose recusing themselves from voting on the Equity Transactions) that the Equity Transactions are fair to the holders of the Common Shares and Convertible Debentures and are in the best interests of the Company and its stakeholders. 

BMO Capital Markets is acting as financial advisor to Perpetual and Sayer Energy Advisors is acting as financial advisor to the Independent Committee.

Bank Lending Arrangements

In conjunction with the Recapitalization Transactions, Perpetual has received a commitment from an existing lender to extend the maturities of both the demand loan and margin loan to October 31, 2016, both previously due on November 30, 2015, with no interim scheduled review until maturity. Availability under the Company's credit facility (the "Credit Facility") has been set at $20 million, reduced slightly from $25 million due largely to the decrease in commodity prices.

The lending commitment also extended the Company's term loan secured by 5.5 million Tourmaline Shares (the "Margin Loan"). Availability under the Margin Loan will be set at $42 million reduced from $58.4 million with the reduction in the number of Tourmaline Shares pledged and payments against the loan made by Perpetual to maintain the required margin coverage. The Margin Loan will continue to require that the daily value of the pledged Tourmaline Shares exceed three times the amount drawn on the Margin Loan.

While the Company's total borrowings under the Credit Facility will be limited to the amounts above, the covenants under the Credit Facility have been amended to remove the limit on Consolidated Total Debt to EBITDA ratio while instead restricting the sum of borrowings under the credit facility plus net working capital liabilities to a total of $40 million (excluding amounts drawn under the Margin Loan). The existing covenant limiting the Senior Debt to EBITDA ratio remains at 3:1 except in the quarters ended June 30 and September 30, 2016 where the limit has been increased to 3.5:1. The Company estimates that it will be in compliance with all of these covenants through the maturity of the Credit Facility at current commodity prices.

New Financing Arrangement

The Corporation has also entered into a series of transactions (the "New Financing Arrangement") with a counterparty which resulted in net proceeds of $18.2 million collateralized by one million Tourmaline Shares. The proceeds were applied to reduce the Margin Loan by $7.2 million with the remainder retained in cash. The New Financing Arrangement on the underlying amount of $21.3 million matures on November 16, 2016.  The New Financing Arrangement provides Perpetual with additional liquidity and preserves its full exposure to increases in the price of the Tourmaline's Shares with downside price protection.  The New Financing Arrangement represents a collateralization of Tourmaline Shares, not a sale, and Perpetual retains substantially all rights and privileges associated with the ownership of such shares.

Settlement of Convertible Debentures

Pursuant to the terms of the Convertible Debentures, Perpetual has provided notice that it is exercising its right to repay the outstanding principal amount of the Convertible Debentures of $34.9 million in equity, by issuing and delivering to holders on the maturity date of December 31, 2015 ("Maturity Date") that number of Common Shares obtained by dividing the principal amount of Convertible Debentures currently outstanding by 95% of the "Current Market Price". The Current Market Price will be calculated as the volume weighted average trading price of Common Shares for the 20 consecutive trading days ending on December 22, 2015, the fifth trading day preceding the Maturity Date. The Company anticipates announcing the Current Market Price to be used to calculate the number of Common Shares that each holder of Convertible Debentures will receive on the repayment of the Convertible Debentures on or about December 22, 2015. All accrued and unpaid interest on the Convertible Debentures will be paid in cash at the Maturity Date.

Rights Offering

Perpetual will file a preliminary short form prospectus (the "Prospectus") with the securities regulatory authorities in each of the provinces and territories of Canada in connection with the Rights Offering.  The proceeds raised of $25 million will be used to contribute to the funding of Perpetual's 2016 capital program.   

Each holder of record of the Common Shares, as of a record date to be determined (anticipated to be mid-December), will receive one right (a "Right") for each Common Share.  Each Right may be exercised by a holder paying an amount equal to $0.1630 (the "Subscription Amount"). Upon exercising a Right, the holder thereof shall be entitled to receive the number of common shares equal to the greater of 0.3140 and the result obtained when (A) the Subscription Amount is divided by (B) the volume weighted average price of the Common Shares for the 20 consecutive trading days ending on and including December 22, 2015 (the "Current Market Price") less a discount of 80.70% and then (C) one Common Share is deducted. 

The Subscription Amount has been calculated by dividing the gross proceeds to be received pursuant to the Rights Offering ($25 million) by the number of Common Shares outstanding as at November 19, 2015 (153,328,390 Common Shares).  The calculation to determine the number of Common Shares to be received upon exercise of a Right has been designed to ensure that holders of Rights who exercise their Rights have certainty regarding the percentage of the equity of the Company that they will own after completion of the Equity Transactions.  The Company determined such a "look through" mechanism was needed to ensure holders of Common Shares and holders of Convertible Debentures are treated fairly in the circumstances.  The "Current Market Price" used for the Rights Offering is calculated in the same manner as the "Current Market Price" used to determine the number of Common Shares to be issued upon repayment of the Convertible Debentures in Common Shares.   

The Company intends to include a sensitivity table in the Prospectus on how many Common Shares will be received upon exercise of a Right at various Current Market Prices.  The Company has retained Kingsdale Shareholder Services to act as information agent for the Rights Offering. The information agent can be reached at 1.855.682.2031 (toll free North America); 416.867.2272 (outside North America) or by email at contactus@kingsdaleshareholder.com.

Investors are encouraged to contact the information agent or the Company to the extent an investor has questions with respect to the calculations described above.

Dreamworks Investment Holdings Ltd., a corporation controlled by the Company's Chairman, (the "Backstopper") has agreed, pursuant to an equity backstop agreement (the "Equity Backstop Agreement"), to exercise its Basic Subscription Right and Additional Subscription Privilege (as defined in the Prospectus) provided to all shareholders of the Company under the Rights Offering. The Backstopper has further agreed to acquire any additional Common Shares available under the Rights Offering that are not otherwise subscribed for by shareholders of the Company, such that Perpetual will receive not less than $25 million, in gross proceeds under the Rights Offering.

The Backstopper currently owns approximately 22.9% of the outstanding Common Shares.  After giving effect to the repayment of the Convertible Debentures in Common Shares, the Backstopper is anticipated to own approximately 17.8% of the outstanding Common Shares following the completion of the Rights Offering, assuming all the other holders of Rights exercise their Rights in full.  If not all of the holders of Rights exercise their Rights in full then the Backstopper's ownership percentage will increase.

The Corporation understands that all of the directors and officers of the Corporation who own Common Shares intend to exercise all of their Rights to purchase Common Shares under the Rights Offering. To subscribe for Common Shares, a completed rights certificate, together with payment in full of the Subscription Amount for each Right subscribed for, must be received by the subscription agent for the Rights Offering, Computershare Trust Company of Canada (the "Subscription Agent"), prior to the Rights Offering expiry date. The record date and the expiry date for the Rights Offering will be determined at the time of filing a final short form prospectus. Holders of Common Shares that fully exercise their Rights will be entitled to subscribe for additional Common Shares, if available, that were not subscribed for by other holders of Rights (the "Additional Subscription Privilege"). The Rights will be exercisable for at least 21 days following the date of mailing of the final short form prospectus. The Rights Offering is subject to regulatory approval, including the approval of the Toronto Stock Exchange.

If a shareholder does not exercise all of its Rights pursuant to the Basic Subscription Right, the shareholder's equity in the Company will be diluted by the issuance of Common Shares upon the exercise of Rights by other shareholders and will also be compounded by the repayment of the Convertible Debentures in Common Shares, which dilution may be significant.  

Before a shareholder exercises their Rights, the shareholder should read the Prospectus, (once filed) as well as the documents that are incorporated by reference therein, for further information about the Company and the Rights Offering. Shareholders may view these documents online by visiting SEDAR at www.sedar.com. Alternatively, copies of these documents may be obtained by contacting the Company at 403.269.4400 or info@perpetualenergyinc.com.

This news release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of securities in the United States or in any province, state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such province, state or jurisdiction. The securities referenced herein may not be offered or sold in the United States except in transaction exempt from or not subject to the registration requirements of the United States Securities Act of 1933, as amended, and applicable state securities laws. 

Proposed Share Consolidation

Following the closing of the Equity Transactions, Perpetual anticipates calling a shareholder meeting in 2016 to consider a consolidation of the Common Shares.

2016 Capital Expenditure Program and Outlook

Perpetual's Board of Directors has approved a 2016 capital expenditure program of up to $32 million, including abandonment and reclamation spending, to advance the Company's strategic priorities as detailed in the table below:

Perpetual estimates oil and liquids production will average approximately 1,350 bbl/d and natural gas sales are estimated to average approximately 100 MMcf/d. The current forward average AECO and WTI prices for calendar year 2016 are $2.45 per GJ and USD$45.62 per bbl, respectively. Spending will be adjusted downward in the event commodity prices decrease below current levels.

Perpetual anticipates that completion of the Recapitalization Transactions will enable the Company to fund planned capital expenditures through 2016.  The Company currently plans to meet its longer term financing requirements into 2017 and beyond through funds flow and, if required, through further equity or debt financing and asset sales, including the potential sale of Tourmaline Shares, as appropriate.

Conference Call and Webcast

Perpetual will be hosting a conference call and webcast at 2:00 p.m., Mountain Time, Friday, November 20, 2015 to review this information. Interested parties are invited to take part in the conference call by dialing one of the following telephone numbers 10 minutes before the start time: Calgary and area 403.451.9838, Toronto and area 647.427.7450; outside Toronto 888.231.8191. For a replay of this call please dial: 1.855.859.2056, passcode: 87201258 until 9:59 p.m. Mountain Time, November 27, 2015.

To participate in the live webcast please visit www.perpetualenergyinc.com or http://event.on24.com/r.htm?e=1100036&s=1&k=416F9628A7784005FECC7EF1A4543EA0 

The webcast will be archived and the webcast presentation will be posted on Perpetual's website shortly following the presentation. The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

Forward-Looking Information

Certain information regarding Perpetual in this news release including management's assessment of future plans and operations and including the information contained under the heading "2016 Capital Expenditure Program and Outlook" may constitute forward-looking statements under applicable securities laws. The forward-looking information includes, without limitation, statements regarding the anticipated benefits of the Recapitalization Transactions, the timing for completion of the Rights Offering, the filing and content of the Prospectus, the proposed share consolidation, capital expenditure levels for 2016; compliance with the covenants through the maturity of the Credit Facility at current commodity prices; capital cost reduction initiatives; prospective drilling activities; forecast production, production type, operations, funds flows, and timing thereof; facility construction and pilot project plans and timing thereof; the planned retention of the Tourmaline Shares and the benefits of retaining such shares and the indirect exposure to Tourmaline's business; forecast and realized commodity prices; expected funding, allocation and timing of capital expenditures; projected use of funds flow and anticipated funds flow; planned drilling and development and the results thereof; expected dispositions, anticipated proceeds therefrom and the use of proceeds therefrom; and commodity prices. Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking information contained in this press release, which assumptions are based on management analysis of historical trends, experience, current conditions, and expected future developments pertaining to Perpetual and the industry in which it operates as well as certain assumptions regarding the matters outlined above. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Perpetual and described in the forward looking information contained in this press release. Undue reliance should not be placed on forward-looking information, which is not a guarantee of performance and is subject to a number of risks or uncertainties, including without limitation those described under "Risk Factors" in Perpetual's Annual Information Form and MD&A for the year ended December 31, 2014 and those included in other reports on file with Canadian securities regulatory authorities which may be accessed through the SEDAR website (www.sedar.com) and at Perpetual's website (www.perpetualenergyinc.com). Readers are cautioned that the foregoing list of risk factors is not exhaustive. Forward-looking information is based on the estimates and opinions of Perpetual's management at the time the information is released and Perpetual disclaims any intent or obligation to update publicly any such forward-looking information, whether as a result of new information, future events or otherwise, other than as expressly required by applicable securities laws.

Volume Conversions

Barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation. In accordance with National Instrument 51-101 ("NI 51-101"), a conversion ratio for natural gas of 6 Mcf:1 bbl has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, utilizing a conversion on a 6 Mcf:1 bbl basis may be misleading as an indicator of value as the value ratio between natural gas and crude oil, based on the current prices of natural gas and crude oil, differ significantly from the energy equivalency of 6 Mcf:1 bbl.

Non-GAAP Measures

This news release contains financial measures that may not be calculated in accordance with generally accepted accounting principles in Canada ("GAAP"). Readers are referred to advisories and further discussion on non-GAAP measures contained in the "Non-GAAP Measures" section of management's discussion and analysis.

About Perpetual

Perpetual Energy Inc. is a Canadian energy company with a spectrum of resource-style opportunities spanning heavy oil, natural gas liquids and bitumen along with a large base of shallow gas assets. The Common Shares and Convertible Debentures are listed on the Toronto Stock Exchange under the symbol "PMT" and "PMT.DB.E", respectively. Further information with respect to Perpetual can be found at its website at www.perpetualenergyinc.com.

The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

SOURCE Perpetual Energy Inc.