IGas plans multi-prong offer to restructure secured, unsecured bonds

By Susanna Moon

Chicago, March 10 – IGas Energy plc said it has received backing for its planned restructuring from about 66⅔% of the secured bondholders and about 40% of the unsecured bondholders.

The restructuring terms “would result in a substantial deleveraging of the business alongside the investment from Kerogen Capital,” according to a company notice.

The company said it forecasts a breach of its bond liquidity covenants in late March unless the revised capital restructuring goes through.

The company’s plans include a potential investment of $35 million of equity from Kerogen, along with a proposed capital restructuring that includes $30 million of additional equity funding and a restructuring of secured and unsecured bonds.

The restructuring includes the following:

• Proposed debt for equity swap of secured bonds tendered by holders under a voluntary equity exchange and, if there is a shortfall, pro rata through bondholder vote, as well for as all of the unsecured bonds;

• Proposed cash offer to holders of secured bonds: Cancellation of secured bonds for a cash payment under a voluntary cash offer and, if there is a shortfall, pro rata under a bondholder vote to secured bondholders to reduce gross debt, along with the proposed debt for equity swap for the secured bonds and amendments to the terms of the secured bonds;

• Proposed reduction in the company's net debt to no more than $20 million from $120 million; and

• Proposed renegotiated set of terms and conditions and covenants for the secured bonds remaining post-restructuring which could allow the company to operate on a “sustainable basis in the current oil price environment and advance the business with lower levels of financial constraint,” the release said.

In the additional equity funding, shareholders may participate in an open offer at a placing price of 4.5p per share.

The company’s plans also include a proposed subscription by some directors to raise about $900,000 by the issue of new common shares.

“This new capital structure would be sustainable in the current oil price environment such that the company is well positioned to capitalize on value accretive opportunities alongside its $230 million carried work program,” the release noted.

The company said it issued $165 million of secured bonds in March 2013 and $30 million of unsecured bonds in December 2013 when the price of oil was about $110 per barrel. In the past two years, the company has been deleveraging its balance sheet through farm-outs and bond buybacks as well as through the amortization of the secured bonds. As at Jan. 31, net debt was $120 million, comprising net bonds outstanding of $153 million and cash of $31 million.

Despite improving oil prices, the company must make “significant adjustments” to its capital structure that will be sustainable in the current oil price environment, as well as allow the company “to capitalize on value accretive opportunities in the future.”

More details

For the unsecured bonds, the total outstanding principal amount will be released in full in exchange for new common shares in the company at a conversion price of 62.5% of par.

In the exchange, the unsecured bondholders also will agree to waive accrued interest.

All unsecured bonds held by the company will be canceled for no payment.

For the secured bonds, an amount of the bonds equal to the secured bond conversion minimum will be canceled and exchanged for common shares of the company, which will occur through a voluntary equity exchange or through pro rata bondholder vote.

In the voluntary equity exchange, the company is offering to swap out their bonds at a price of par.

To the extent that secured bonds offered exceed the $50 million par amount conversion minimum, the company may choose whether to accept the offers in part or in full, up to the maximum equity conversion amount of $60 million.

The exchange rate is 1.2167, which is the closing exchange rate on March 9.

All secured bonds held by the company will be canceled.

If the conversion minimum is not reached, the company may secure the repurchase and cancellation of the remaining secured bonds on a pro rata basis in an amount equal to the shortfall with the approval of at least 66⅔% of the voting bonds represented at a bondholder meeting.

Secured bondholders other than the company will be allocated common shares at the issue price “for a value equal to a fixed all-in price of 100% of par value for each $1.00 of secured bonds released,” the release noted.

The minimum number of secured bonds that may be tendered or exchanged for equity through the bondholder vote is expected to be at least €100,000 in dollars.

In the cash offer, an amount of secured bonds equal to the cash cancellation minimum will be canceled and exchanged for cash, either through a voluntary cash offer or pro rata bondholder vote.

In voluntary cash offer, secured bondholders may offer their bonds for sale to the company at a fixed price of 100% of par.

The company will repurchase an amount equal to the secured bond cash cancellation minimum of $30 million par amount from those secured bondholders who have offered their secured bonds for sale at a fixed all-in price of 100% of par.

To the extent that the principal amount of secured bonds offered exceed the cash cancellation minimum and would not require more than the excess cash amount, the company said it will accept the offers in excess of the cancellation minimum in full.

Otherwise, the company will accept the additional offers in full or in part up to the excess cash amount and will decide whether to accept the offers.

If the amount of secured bonds accepted through the voluntary equity exchange tops the conversion minimum, then $30 million less 50% of the excess.

In the bondholder vote, there will be pro rata allocation to the extent the secured bond cash cancellation minimum is not met in the voluntary cash offer, which requires votes for at least 66⅔% of the voting bonds represented at a meeting.

Amendments to secured bonds

The rest of the secured bonds would be amended by way of bondholder resolution as follows:

• Term extended to June 30, 2021;

• Interest of 8% per year, effective March 23;

• Amortization on year one of 2.5% outstanding principal amount at completion payable on Sept. 22, 2017 and March 22, 2018;

• Amortization beginning in year two of 5% outstanding principal amount at completion payable semiannually;

• Repayment in full at maturity with the outstanding balance repayable at maturity;

• Amortization suspended if Brent Crude oil price is less than $50 per barrel;

• Minimum liquidity covenant of $7.5 million;

• Leverage covenant with ratio of no more 3.5x;

• No other financial covenants;

• Debt service retention account removed and amounts released to company;

• Amendments to change-of-control put option to allow Kerogen Capital to hold more than 30% of the common shares in the company;

• All prepayment premium to be removed and prepaid amounts to be applied in order of maturity; and

• Mandatory offer for disposal proceeds to be set at a threshold of $20 million with 50% of net proceeds in excess of this to be offered to the secured bondholders for redemption.

For the secured bonds, interest accrued up to March 22 and amortization amount to be paid in full in cash.

Interest accrued after March 22 would be waived for the secured bonds canceled after the debt for equity swap or cash offer.

The bondholder transactions must be approved by at least of 66⅔% of the voting secured bonds and of 66⅔% of the voting unsecured bonds. To form a quorum, at least 50% of the secured bondholders and 50% of the unsecured bondholders must be represented at the bondholder meeting.

The target date for completion of the transactions will be in early April.

IGas is a London-based onshore hydrocarbon producer, delivering natural gas and crude oil to Britain’s energy market.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.