One of the largest bondholders in Premier Oil has expressed “deep dissatisfaction” with the offered terms and consultation process for the firm’s refinancing bid.
Pyrrho, an investment fund, released a statement on the LSE hours after the British exploration and production company announced a proposed complex financial restructuring had been given first approval.
Pyrrho is one of the three largest convertible bondholders in Premier Oil with approximately 10% of the total convertible bonds in issuance.
Premier Oil released a statement as markets opened today stating that it had agreed amended terms relating to its $245m convertible bonds with all the members of an ad hoc committee of bondholders and other lenders.
Premier Oil’s share price dropped around 6% on the back of the announcement.
Shares were trading at 65pence down from the LSE market opening price for the day of 67.50.
However, Pyrrho hit back at the restructure’s “lack of transparency”, stating it thought the deal fell short.
The bondholders said: “We wish to express our deep dissatisfaction with the offered terms and consultation process to date.
“We would also like to express our concern with the lack of transparency and poor communication in the process by which the company and its representatives attempt to restructure the convertible bond.
“On February 6, 2017, Pyrrho had to proactively contact Moelis & Company to let them know that Pyrrho is a major bondholder.
“Since then, despite our significant holding of convertible bonds, Moelis has kept us at a distance and made no attempt to invite us on to the “ad hoc committee of convertible bondholders” as referenced by Premier Oil in its recent announcements.
“Instead, since our initial contact, Pyrrho has been instructed by Moelis to await the term sheet of the proposal.
“Pyrrho finally received this term sheet on February 24, 2017. This was presented as a final ‘fait accompli’ term sheet, leaving Pyrrho 72 hours to accept or decline. Pyrrho has been given no financial analysis of the Company’s proposal to justify its fairness to bondholders.
“As such, Pyrrho believes that the procedure to date has been unduly hasty and that the so called ‘as hoc creditors committee’ is, by no means, representative of the broader community of bondholders.”
Premier Oil said the agreed amendments include the maturity date being extended to May 31, 2022. Its interest rate will remain at 2.5%, to be paid, at the election of the company, either in new shares, or from the proceeds of sale of new shares.
Its conversion price will be reset at a premium of 20% to the higher of the volume weighted average price of Premier’s shares over the period from today to March 22, 2017. Equity warrants representing 3% of Premier’s issued share capital at a price of 42.75 pence/share, no cash amendment fee and an issuer right to require conversion at the conversion price at any time after one year if the value of Premier’s shares is at least 140% of the conversion price for 25 consecutive dealing days.
All seven members of the ad hoc committee, representing 47% of the convertible bonds, have now locked up to the above terms.
A statement released from Premier Oil said: “Convertible bondholders outside the ad hoc committee are encouraged to contact Moelis & Company, as financial advisers to the committee, in order to lock up to the terms in respect of their holding. The lock up to the convertible bond terms will become effective on completion of the Private Lender lock up process.”
However Pyrrho claim the maturity extension beyond the revised date set for private and senior bank lenders puts bondholders in an “undesirable subordinated position”.
The statement also adds: “The conversion pricing formula gives no certainty to bondholders as to an upper cap conversion price, and makes the proposed reset conversion price subject to the vagaries of market sentiment during the initial 22 trading days post announcement.
“The proposed mechanism for paying the 2.5% per annum interest coupon is too complex. It should be at the election of the bondholder, not the company, as to whether we receive shares or cash for this periodic interest payment.”
Pyrrho goes on to call the alternative mechanism proposed to convert bondholders’ terms as “fraught with legal risks” and subject to legal challenge by bondholders.
The investment fund said this could lead to a “length” period of uncertainty, threatening the debt restructuring plan and delaying a return to capital markets.
Pyrrho statement ends: “We note the announcement made by Premier Oil on 1st March 2017 stating they have 47% of the convertible bond ‘locked up’ and in favour of the current proposed terms. Pyrrho draws bondholders attention to the fact that the Company is a long way from the 75% minimum vote needed to pass on this resolution at the EGM of bondholders.
“Pyrrho is currently opposed to this resolution and has 10% of the current voting rights. If other bondholders concur with Pyrrho, a no vote can easily reach 25%, which will prevent this resolution from being passed.
“Pyrrho encourages any other bondholders who are dissatisfied with the Company’s proposed terms and opaque consultation process to contact us as detailed below.”
Premier Oil’s announcement of the initial agreement comes after a trying year for the firm. Premier Oil has been issuing monthly deferrals in respect to the test of its financial covenants for the past 12 months. At the beginning of last year it was forced to suspend its shares.
Earlier this year, Premier Oil’s chief executive Tony Durrant said the oil majors were striking the right deals for the North Sea.
At the time he said: “We can now talk to the majors about who runs the operations and who makes the incremental investments going forward without somehow this lead weight of abandonment liabilities hovering over the discussions.”
The firm’s flagship North Sea Catcher development is due to come on line in late 2017. Premier Oil has cut 30% from the project’s original costs.
The status of the formal credit approval and lock up of the Private Lenders will be reported in conjunction with the Company’s Annual Results Announcement on March 9.
Once the lock up with the group’s private lenders becomes effective, further monthly deferrals of the financial covenant test will no longer be required.
Premier Oil has been contacted for comment.
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