Norway’s DNO aims to conform $200 million of 8¾% bonds to new issue

By Susanna Moon

Chicago, June 15 – DNO ASA is seeking to align its $200 million of outstanding $400 million 8¾% senior callable bonds due June 18, 2020 with its $400 million 8¾% five-year senior bonds issued May 31.

The bondholder meeting has been set for June 29 in Oslo.

The covenant structure and terms of the bonds issued in 2015 would conform to those of the recent new issue, but the maturity date, coupon rate and outstanding amount would remain unchanged, according to an announcement.

Under the alignment, the issuer's call options would be removed, the release noted.

“A significant group” of bondholders has given their support for the proposal, the release added.

Pareto Securities AS (+47 2413 2133 or +47 2287 8748) is the adviser.

The $400 million 8¾% five-year bonds included a rollover of $200 million nominal value of the bonds due 2020. After the new issue, the company had more than $500 million of cash balances, plus financial assets and treasury shares with a market value exceeding $250 million, including the shareholding in Faroe Petroleum plc.

The company also holds $600 million of outstanding bonds. The company’s current market capitalization is more than $2 billion.

The rolled over bonds were subsequently canceled, with $200 million left outstanding.

The company said it is now looking to align the covenant structure and terms of the remaining bonds with those of the new bond issue.

The proposal

The key amendments are as follows, according to a bondholders notice by Nordic Trustee AS:

• Dividend restrictions: No limit on yearly distributions, subject to liquidity of at least $80 million;

• Financial debt restrictions: Permitted financial debt applicable to issuer in addition to all other group companies;

• Permitted financial debt: Following DNO’s 20% participating interest increase in the Tawke license to 75% in 2017 (in addition to the 3% five-year override royalty), the maximum debt cap on the Tawke PSC is increased to $400 million from $250 million, plus extended possible sources of that debt. Additionally, limitations of the ability of any group company other than the issuer to incur a maximum debt of $150 million provided by financial institutions or banks have been lifted;

• Financial covenants: Introduction of a minimum nominal book equity of $600 million as an alternative to an equity ratio of 30%; DNO is required to comply with either one;

• Put event: Mandatory prepayment swapped with a bondholder put option; and

• Issuer's call option: Issuer's right to redeem the bonds would be deleted.

After the amendments, the terms of the bonds would “mirror” those of the new issue except that it would not have an issuer's call option, would continue to have semiannual interest payments and the maturity date will continue to be on June 18, 2020.

The proposal allows the company “to optimize its capital structure going forward, including fulfilling its ambitions to actively pursue investments on the Norwegian Continental Shelf, including exploration, development and production assets,” the release said.

To form a quorum, at least one-half of the voting bonds must be represented at the meeting. To approve the measure, bondholders of at least two-thirds of the bonds represented must vote in favor of it.

DNO is a Norwegian oil and gas operator focused on the Middle East and the North Sea. It is listed on the Oslo Stock Exchange. The company holds stakes in onshore and offshore licenses in the Kurdistan region of Iraq, Norway, Oman, Somaliland, Tunisia, the United Kingdom and Yemen.

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