Sterling Resources UK gets OK to amend 9% bonds to improve liquidity

By Toni Weeks

San Luis Obispo, Calif., Dec. 12 – Sterling Resources (UK) plc said it received enough votes at a bondholders meeting on Dec. 12 to approve amendments to its outstanding $202.5 million of 9% senior secured bonds due 2019, according to a notice from bond trustee Nordic Trustee ASA.

There were sufficient bondholders present at the meeting to form a quorum, and the proposed resolution obtained 99.73% of the votes. It needed approval from two-thirds of the bondholders by value to become effective.

The company announced on Nov. 28 its intention to hold the meeting, saying it needed to strengthen its liquidity position for the next few months while it pursued a refinancing of the bond, potentially in combination with one or more asset sales of part of its main asset, Breagh gas field, and Romanian licenses.

Field challenges

Sterling said that net cash flow from Breagh had been adversely impacted by a combination of delayed production start-up, unexpected shutdowns, lower-than-expected production from the initial wells, lower-than-expected U.K. gas prices and increased capital expenditures.

The company said its lower-than-expected production could be remedied by hydraulically stimulating new wells and existing wells and by side-tracking some existing wells.

Bond proposals

Sterling said it would seek bondholder approval to suspend transfers of funds into a restricted account used for debt servicing obligations between Nov. 30 and April 30. The aggregate amount due would then be paid into the account on April 30.

Current funds in the account of about $5.5 million would be used to pay a $2.5 million amendment fee to bondholders, with the balance transferred back to an unrestricted bank account of Sterling if the amendments were approved at the meeting.

The company also requested for the minimum liquidity covenant under the agreement to be reduced to $7.5 million from $10 million until Jan. 30.

Sterling did not expect to defer scheduled semiannual interest payment and amortization installment on April 30, nor did it ask to issue any new bonds as a result of the amendments.

The company said the bond amendments would provide incremental liquidity of $32.7 million prior to the interest payment and amortization installment payment on April 30. It felt this was sufficient to address a currently anticipated cash deficit of about $8 million as of Dec. 31 and of $20 million at April 30, prior to the bond amendments.

Sterling said it could raise funds to meet Sterling’s payment to bondholders as a result of asset sales and/or by refinancing the bond, most likely via a bank market reserves-based loan.

The company had received support from holders of a majority of the bonds for the amendments prior to the meeting.

Calgary, Alta.-based Sterling in an oil and gas company with assets in the United Kingdom, Romania, France and the Netherlands.

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