Afren may use grace period for 2016 bond payment; committee formed

By Caroline Salls

Pittsburgh, Jan. 28 – Afren plc’s board of directors is considering whether to use a 30-day grace period in connection with a $15 million interest payment due Feb. 1 on its 2016 bonds to allow a review of the company’s capital structure and funding alternatives to be completed, according to a news release.

The company said an informal committee of bondholders has been formed, and Afren is in talks with the committee’s advisers regarding immediate funding and liquidity needs of the business.

Assuming the current debt structure remains unchanged, the company said there is an equity funding requirement which is likely to be significant and in excess of Afren’s current market capitalization.

New funds will be required to meet interest and principal repayments, working capital and a reduced capital expenditure program, the release said. The company said it will hold recapitalization discussions with its existing stakeholders and new third-party investors.

In addition, the board is implementing efficiency and cost optimization measures to improve its liquidity position. Alvarez & Marsal has been hired to provide services as chief restructuring officer.

Afren said it had a cash balance of $235 million at Dec. 31. Liquidity available to the company is significantly lower as a result of restricted and segregated cash balances in place to address operational requirements. The company said its near-term cash flow is also impacted by capital expenditure incurred in late 2014 before operational changes had been implemented to adapt to the current lower oil price environment.

As previously reported, Afren is in negotiations with the lenders of its $300 million Ebok debt facility with a view to obtaining a deferral of the $50 million amortization payment due Jan. 31.

According to the release, Afren’s board reviewed its business plan to minimize its funding requirements in the current oil price environment to focus on the development of the company's core assets in Nigeria.

The company said it is also still in discussions with SEPLAT Petroleum Development Co. plc regarding a possible combination with Afren.

Afren is an oil and gas exploration and production company based in London.

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