4th Feb

Premier Oil Retail Bond Trades up 4.27% as Debt Refinancing Deal is Agreed

Following nine months of negotiation, North Sea oil explorer, Premier Oil, has agreed the terms of its long-awaited debt refinancing sending its retail bond almost five per cent higher on ORB to 88.7 on volume of 440,000 traded.    

The company, which is one of the largest independent North Sea producers, owns the Solan development west of Shetland and is leading the Catcher Project had been granted a series of one-month deferrals on covenant tests while negotiating to restructure its debt.    

As of December, the company reported total debt of $2.8bn (£2.24bn); the refinancing includes confirmation of existing loan facilities totalling $3.9bn (£3.12bn) with undrawn capacity preserved and aligned to a final maturity date of May 31, 2021. 

Subject to credit approvals Premier has reached agreement with its private lenders which will preserve the group debt facilities and extend debt maturities to 2021 and beyond; these proposals are subject to shareholder approval. The duration of its retail bonds has been extended by six months, under ‘substantially the same economic terms’; headlines are 

* Coupon uplift from 5% to 6.5% 
* Maturity date extended by six months to May 31st 2021 
* 1% amendment fee 
* Pro-rata participation of the warrant package (equivalent to 15% of issued shares and an in-the-money strike) 
* Participation in security package, ranking alongside the private debt facilities *     

Premier announced that in return its lenders would receive ‘a revised security and covenant package, enhanced economics and certain governance controls’. 

This would extend to the company’s decisions around capital expenditure, embarking upon new projects and future acquisitions and disposals. Lenders will receive 1.5% uplift on the margin on existing debt as well as a 1% amendment fee. 

The company also plans to issue 90m equity warrants to the lenders which gives them the right, but not the obligation, to buy or sell shares at a set price up until the time they expire; the Premier warrant, which equates to fifteen per cent of its issued shares, are priced at 42.75p per share with a five-year term. 

The ratio of the company’s debt against its earnings before interest, tax depreciation and amortisation (EBITDA) cover has been relaxed to 7.5x for the rest of this year, with the aim to return to its original 3x level in 2019. 

With Catcher due to come on line in late 2017 the group predicts a hike in production and it plans to use this cash flow to reduce absolute debt levels and achieve the reduction in its leverage ratio to three times. 

Premier still expects to be able to be able to pursue unsanctioned new projects Tolmount, Tuna and Sea Lion by selectively seeking to invest ‘at the appropriate equity levels, with due regard to the commodity price environment’. 

The company has the equivalent of 700m barrels of oil discovered but undeveloped – ‘a considerable portfolio optionality’. Premier Oil chief executive Tony Durrant said: ‘The agreement of the long form term sheet with representatives of our Private Lenders marks a significant milestone for Premier. We are grateful for our lenders' continued support, which reflects the high quality nature of our asset base, the strong recent operating performance and our plans to deliver value for all of our stakeholders.’  

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