News

23rd Nov

Good News for Bondholders as Premier Oil Closes in on Refinancing Deal

There could be good news for its investors and bond holders as Premier Oil seems set to secure the biggest debt refinancing deal in the North Sea since oil prices collapsed; its main lenders have provisionally agreed terms to keep the company’s head above water. 

Premier’s debts reached $2.8bn at the end of October as oil prices dragged its balance sheet down, and with more than 40 banks involved, attempts to refinance the business have been tortuous; nervous retail bond holders have seen the price of their loans scrabble back to a closing price of £72 yesterday (22nd Nov) having been as low as £38 in January 2016. 

Negotiations have been protracted because of the complex nature of Premier’s financing; however, it has received a term sheet from its primary lenders – Revolving Credit Facility, term loan, Schuldschein, and US private placement notes, accounting for about 85% of borrowings - and is hopeful that it will reach final agreement by the end of the year and complete the refinancing early in 2017. 

Key to the future success of the business is the completion of the development of its Catcher oilfield in the North Sea and to ensure it has access to the finance required to achieve this, it is considered crucial that the maturities of Premier’s loans are extended and that certain covenants, such as limits on its debt-to-earnings ratio, are relaxed.  

Provisions of the term sheet are: ·  

       

  • *  Preservation of the full amount of the existing facilities including undrawn amounts          
  • *  The alignment of all maturities of the facilities to 2021 or later        
  • *  Amendment of the group's financial covenants with the aim of providing sufficient headroom  until after Catcher comes on-stream in 2017         
  • *  Enhanced economics to lenders         
  • *  Governance controls including in respect of the sanctioning of new development projects    


On the basis of this term sheet Premier Oil will now engage with its convertible and retail bondholders but securing consensus from its 40-strong main creditors board was seen as the major hurdle to overcome; as part of the refinancing process, its financial covenants have been rolled on a monthly basis until negotiations with its lending group concludes. 

Whilst those holding Premier stock or debt securities will be looking on with understandably keen interest, these negotiations are considered a litmus test of the City’s willingness to support the UK oil and gas sector as crude prices show little sign of rising above levels they slumped to in mid-2014 when Brent Crude headed south from $110 a barrel to below $50. 

EnQuest, another North Sea producer that has been in the wars, last month agreed the refinancing it needed to keep development of its Kraken oilfield on track; having ‘tapped’ the market for additional funding and seen the price of its retail bonds hit £102.07 in the secondary market on ORB, it then tanked to hit £28.95, forcing it to raise the coupon it paid to 7% because it had broken a covenant to keep its leverage ratio below 3:1.   

See: 'A Gusher for the DIY Investor as EnQuest Hikes Retail Bond Coupon to 7%?’ Retail Bond Expert June 1st 2016   

EnQuest has seemingly found it easier to restructure than Premier although the price of its retail bond continues to hover around £65. 

Analysts have broadly welcomed Premier’s news as light at the end of the refinancing tunnel; under the revised terms, the maturity of all existing loans is pushed out to 2021 or beyond, in return for a 1.5% increase in interest payments and stronger security and governance controls for lenders. 

Tony Durrant, Premier chief executive, said: ‘Refinancing of the group’s debt has taken longer than anticipated but will, once completed, put Premier in good stead to reinvest in the business while, at the same time, paying down debt.’ 

Catcher is on course to start production next year with total capital expenditure now expected to be $1.7bn — 25% lower than when first approved; production from existing operations is on track to meet its full-year guidance for 68,000-73,000 barrels of oil equivalent a day.

The company is benefiting from a step change in production with a significantly lower cost base while excellent progress has been made on the Catcher project,’ Mr Durrant said. 

For more see 'For Your Eyes Only - Mr Bond in Conversation with Premier Oil Finance Director Tony Durrant’ 

Add Your Comment

Comment*