The financial troubles of Coho Energy reached a new level lastweek as the Dallas-based company received a formal notice from itslenders that the obligations under its $240 million credit facilityhave been accelerated and the lenders intend to exercise all rightsand remedies to satisfy those obligations.

This latest announcement will only feed the rumors that Coho couldbe the next E&P company to file Chapter 11 (see Daily GPI, March 25). Currently the company remains indefault under the terms of its $240 million bank credit facility andits $150 million senior notes. Coho first defaulted on bank paymentslast March. It has been actively working with all groups to reach anagreement on a restructuring of the debt instruments and has not yetfinalized an agreement that is satisfactory to all parties.

The default came just weeks after Coho failed to come to anagreement with the Hicks, Muse, Tate & Furst (Hicks, Muse) onselling its majority interest to the investment firm for $250million. Hicks, Muse wanted the share price offer to be droppedfrom $6 to $4 per share, increasing the interest it would acquirefrom 62% to 71%. Coho considered the option, but was unable toclose the deal, leaving it unprotected to investors.

Feeling betrayed by Hicks, Muse, Coho filed a lawsuit againstthe investment firm in late May. The suit, which was filed onCoho’s behalf in state court by the trial firm of Thomas &Culp, L.L.P., is still ongoing and seeks damages worth a reported$500 million.

It alleges that HM4, a limited partnership formed by Hicks Musereneged on a contract to inject the $250 million of equity capitalinto the company at the $6 price. The suit alleges that HM4 waiteduntil after Coho’s public stockholders had approved the agreement,then reneged on the deal at the last minute in order to renegotiatethe price down. Then according to the allegations, HM4 walked awayfrom the new agreement.

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