Brazil’s QGOG reveals info on new notes to be issued in exchange offer

By Angela McDaniels

Tacoma, Wash., July 3 – QGOG Constellation SA released information about the new notes that will be issued in the exchange offer for its 6¼% senior notes due 2019.

As previously reported, the company is offering to exchange the notes for 9% cash/0½% pay-in-kind senior secured notes due 2024.

In a Monday news release, the company said the new notes will amortize semiannually at the following rates: 1.25% of par from November 2019 up to but not including November 2020, 2.5% of par from November 2020 up to but not including November 2022 and 3.75% of par thereafter.

The new notes will initially be secured by some assets of the company, including but not limited to each of the company's current unencumbered offshore rigs and drilling vessels and the insurance receivables and charter receivables related to those vessels.

The new notes will also have a springing collateral package that could consist of additional offshore rigs and drilling vessels as well as their related insurance receivables and charter receivables.

The new notes will be guaranteed on a senior secured basis by some subsidiaries of the company, including but not limited to the guarantor of the existing notes, Constellation Overseas Ltd., and the entities that own the unencumbered rigs. The new notes will also be guaranteed on a subordinated basis by Star International Drilling Ltd.

Finally, the new notes will have a more restrictive covenant package, including a restriction on dividend payments and additional limitations on the incurrence of debt.

The exchange offer will end at 11:59 p.m. ET on July 17.

Holders will receive $1,000 principal amount of new notes plus $20 of cash for each $1,000 principal amount of 6¼% notes tendered for exchange by 5 p.m. ET on July 12, the early tender date.

Holders who tender after the early deadline will receive $1,000 principal amount of new notes per $1,000 principal amount of old notes.

QGOG will pay accrued interest in cash.

Concurrently with the exchange offer, the issuer is soliciting consents to amend the note indenture in order to eliminate substantially all of the restrictive covenants and some events of default and related provisions.

Holders who tender must deliver consents.

Completion of the offer is subject to the tender of at least 90% of the existing notes.

On June 28, the company announced changes to the new notes after discussions with a group holding about 59% of the company's existing notes. The group comprises the steering group of a larger ad hoc group of holders who represent about 66% of the existing notes.

As announced April 3, the company was originally offering to issue 8½% senior notes due 2024 in exchange for tendered 6¼% notes.

QGOG also extended the exchange offer to continue discussions with a group of bondholders who represent about 70% of the 6¼% notes.

The offer has been extended several times since April 28, most recently from 11:59 p.m. ET on June 30.

On June 28, the company said holders had tendered $95.6 million of the notes.

The most recent tender count compares with tenders for $94.9 million as of June 23, $94.9 million as of June 16 and June 9, $94.6 million as of June 2, $94.8 million of the notes as of May 26, $94.3 million as of May 19, $91.6 million on May 12, $89.2 million on May 5 and $88.6 million on April 28.

The company previously extended the early deadline to 11:59 p.m. ET on April 28 from 5 p.m. ET on April 17 to provide holders with more time to review the exchange.

“The purpose of the offer is to provide the company with flexibility to navigate industry headwinds by extending the maturity profile of the existing notes, thereby facilitating the refinancing of the remainder of its debt and better aligning the company's balance sheet with the anticipated recovery in industry conditions,” the company said in a previous release.

Ipreo LLC (212 849-3880 or 888 593-9546) is the information agent and exchange agent.

QGOG is a Rio de Janeiro-based provider of offshore and onshore drilling in Brazil through subsidiary Queiroz Galvao Oleo e Gas SA.

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