Sirius Minerals offers incentive conversion for 8.5% notes due 2023

By Susanna Moon

Chicago, April 11 – Sirius Minerals plc is allowing holders to exercise their conversion option on $308 million of outstanding 8.5% seven-year guaranteed convertible bonds issued by Sirius Minerals Finance Ltd.

The conversion option will close at 10 a.m. ET on April 16, with the conversion following on April 17.

Under the terms of the incentivized conversion, holders who convert their bonds will receive for each $200,000 principal amount, 650,195.05852 common shares as well as a cash make-whole amount, according to a company announcement.

Holders may specify an incentive amount between $2,000 to $10,000 per $200,000 principal amount, which is potentially 4,662.10247 to 23,310.51234 incentive shares per $200,000 principal amount at a fixed reference price of $0.4290 per share.

The premium to parity shares represent the premium of the market price of the bonds versus the value of the base shares over the period of 10 business days from the launch date, the company said.

The final number of incentive shares will be determined pursuant to a modified Dutch auction, the release noted.

The current exchange price is $0.3076 per share and the fixed exchange rate is £1.00 for $1.2304, fixed on Nov. 3, 2016.

The company’s stock (London: SXX) closed at 30.40p on April 10.

With the bonds trading substantially "in‐the‐money," the company is seeking to accelerate the conversion of the bonds to reduce its debt before its stage two financing later this year and to allow the company to release some of the cash that had been set aside in a secured escrow account to cover interest payments on the bonds.

The conversions also would reduce hedging activities for the common shares by some bondholders as well as the overhang on the shares underlying the bonds from potential ad-hoc conversions, the company noted.

The issuer retains the right to redeem the convertibles at par plus accrued interest at any time if 85% or more of the amount of bonds originally issued has been converted or repurchased and canceled.

Deutsche Bank AG, London Branch (+44 20 7547 3160 or jonathan.murray@db.com) is the dealer manager.

As reported Nov. 3, 2016, Sirius priced $400 million of 8.5% seven-year guaranteed convertible bonds at par with a 25% initial conversion premium.

The bonds are convertible into ordinary shares at an initial conversion price of 30.76 cents.

The convertible debt becomes redeemable on or after Dec. 19, 2018 if the ordinary shares underlying the bonds reach a 175% price hurdle. The paper can also be redeemed on or after Dec. 19, 2021, is the stock hits a 150% price hurdle.

Sirius Minerals is a North Yorkshire, England-based fertilizer development company.

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