PostRock Energy Corp., Oklahoma City, (Nasdaq: PSTR) reports that recently formed private equity firm White Deer Energy LP, Houston, has agreed to invest $60 million of equity in the company. In connection with the investment, PostRock's debt will be reduced and its credit agreements restructured.

White Deer will purchase $60 million of the company's 12% cumulative redeemable preferred stock. The preferred stock has a 7 ½ year term and is callable after one year at par plus 10%. The company has the option to pay the preferred dividends in cash or in kind until July 2013. In addition, White Deer will receive 7 ½ year warrants to purchase $60 million of common stock. The exercise price of the warrants was set at $3.15 per share, which represents an approximate 5% premium to PostRock's closing stock price on Sept.1.

PostRock will use the proceeds to reduce debt and fund future growth. The investment and the debt restructuring are expected to close simultaneously in approximately three weeks, subject to the satisfaction or waiver of various closing conditions. As part of the transaction, White Deer has reserved an additional $30 million to invest in PostRock on mutually acceptable terms to fund future growth.

White Deer will be entitled to vote with the common stock on all matters based on its pro forma interest in the company giving effect to the exercise of its warrants. However, it has agreed to limit its vote to 45% for a period of time. White Deer will designate Thomas J. Edelman, James D. Bennett and Nathan M. Avery as directors, expanding the board to twelve. Nasdaq granted the company a financial viability exception from the requirement to obtain shareholder approval of the transaction. PostRock's audit committee approved the exemption request and the board obtained a fairness opinion on the transaction.

Following the transaction, the company's debt will consist of approximately $200 million drawn against $225 million of current availability under a revolving credit facility, a $15 million amortizing term loan secured by the KPC Pipeline and a $43.5 million loan secured solely by certain Appalachian assets and nonrecourse to PostRock.

Robert W. Baird & Co. has been retained to sell the company's Appalachian assets.

The revolver will mature June 30, 2013, and bear interest at LIBOR + 3.5% to 4.0%, depending on utilization. The pipeline loan will amortize over 18 months and bear interest at LIBOR + 3.75%. The nonrecourse loan will mature June 30, 2013, and bear interest at LIBOR + 4.0%.

PostRock president and chief executive David C. Lawler says, "The transaction represents the conclusion of a two-year effort to restructure and recapitalize the company. During this challenging period, we reduced operating costs, kept our capital projects on budget and maintained a strong production base. We have now partnered with a world class team of investors whose capital enables us to materially improve our financial position.

"We will seek to become the most efficient producer in our focus area and then start to pursue acquisitions."

White Deer managing partner Thomas J. Edelman, adds, "We are very pleased with this investment and to be associated with PostRock and its management team. David Lawler has done an exceptional job in preserving shareholder value and providing leadership under extraordinarily difficult circumstances. We look forward to working closely with him, his officers and the board. Given the company's strategic position in the Cherokee Basin and its ability to focus on becoming a low cost and profitable producer, we have every confidence that our investment, and that of all PostRock shareholders, will have the opportunity to provide exceptional returns."

PostRock is engaged in the acquisition, exploration, development, production and transportation of oil and gas primarily in the Cherokee Basin of Kansas and Oklahoma. The company owns and operates more than 2,800 wells and nearly 2,200 miles of gas gathering lines in the basin. In addition, it owns 1,100 miles of interstate gas pipelines in Oklahoma, Kansas and Missouri.

White Deer Energy is an energy private equity fund focused on the E&P, oilfield services and equipment and midstream sectors of the oil and gas industry. With $821 million of capital commitments, the fund is a long-term investor targeting equity investments of $50- to $120 million in eight to 10 portfolio companies.

With announced financing, debt restructuring and planned asset sales, KeyBanc Capital Markets believes PostRock's financial uncertainty has been reduced substantially, and the firm has revised its rating for the company from Not Rated to Hold.

Based on a price tag of $1,500 per acre on average, KeyBanc associate analyst Gabriele Sorbara says PostRock's Appalachian package could fetch north of $65 million. "We believe that our acreage value estimate could be conservative, given that the Marcellus in northern West Virginia is heating up with activity from larger operators, such as Chesapeake Energy, Oklahoma City, (NYSE: CHK), EQT Corp., Pittsburgh, Pa., (NYSE: EQT) and Consol Energy Inc., Pittsburgh, (NYSE: CNX)," Sorbara said.

According to Sorbara, the latest transaction in the region was a joint venture between Trans Energy Inc., St. Marys, W.Va., (OTCBB: TENG) and Republic Energy Ventures LLC, which went for more than $7,000 per acre for acreage in Marion, Tyler, and Wetzel counties in West Virginia.