Sirius Minerals holders convert $63.8 million of 8.5% notes in offer

By Susanna Moon

Chicago, April 17 – Sirius Minerals plc said it has accepted for conversion $63.8 million of the 8.5% seven-year guaranteed convertible bonds issued by Sirius Minerals Finance Ltd.

As announced April 11 the company was allowing holders to exercise their conversion option on the $308 million of outstanding 8.5% convertibles until 10 a.m. ET on April 16, with the conversion following on April 17. Settlement is expected to occur on April 23.

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

The offer amount was fixed at $10,000 per $200,000 principal amount, according to a company announcement.

In total, the company expects to issue 218,113,663 common shares, which comprises 650,195.05852 base shares per bond, 10,236.89485 premium to parity shares per bond and 23,310.02331 incentive shares per bond.

The dilution resulting from the issue of the incentive shares will be less than 0.16% of the enlarged share capital of the company.

After settlement, there will be left outstanding $244.2 million principal amount, or 61.1% of the bonds originally issued.

As a result of the conversion, the company said it has saved $27.1 million in interest that would otherwise have been payable.

“The total cost of incentivizing conversion through the issue of shares was more than offset by the release of escrowed cash and removal of the need to pay interest payments beyond year two,” Sirius Minerals' finance director and chief financial officer, Thomas Staley, said in the press release.

“This has enabled us to facilitate an orderly conversion for bondholders and optimize our capital structure ahead of stage two financing later this year.”

In the conversion offer, holders could 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 represented 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 previously said.

The final number of incentive shares was to be determined under a modified Dutch auction, the previous release noted.

The exchange price was $0.3076 per share and the fixed exchange rate was £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 previously said it was 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 retained 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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