Oro Negro bondholder group nixes company’s debt-conversion proposal

By Caroline Salls

Pittsburgh, Aug. 29 – An informal group of the holders of Oro Negro Drilling Pte. Ltd.’s 7½% senior secured bond issue 2014/2019 rejected a restructuring proposal submitted to bondholders Monday in favor of one the group said it sent to the company earlier this month, according to a letter released Tuesday.

“The company proposal is not a viable restructuring proposal as there is no justification for holders of the bonds to undertake a material debt-for-equity conversion given the company’s current financial and operational condition, including the ad hoc group’s support for the latest proposal of Petroleos Mexicanos (Pemex) concerning certain amendments to the drilling contracts between the company and Pemex for the Primus, Laurus, Fortius, Decus, and Impetus rigs,” the bondholder group said in its letter.

As previously reported, Oro Negro said its proposal addresses a series of amendments requested by Pemex to the drilling contracts for the Primus, Laurus, Fortius, Decus and Impetus rigs operated by Oro Negro Drilling affiliate Perforadora Oro Negro, S de RL de CV.

Specifically, the company said it designed a proposal to exchange its existing senior notes for a package of new securities, including new senior notes, new preferred equity, new common equity, cash and the Primus rig.

Holders of existing notes would receive a share of $300 million of 8¼% senior secured notes due five years from the closing date under the company proposal, as well as $150 million of new preferred equity with a 12% coupon with a payment-in-kind toggle function and a maturity date of six years from closing, the transfer of the Primus rig or the economic interests related to the rig, $30 million in balance sheet cash and 10% of the new common equity.

The company said the exchange package is intended to create a sustainable balance sheet, while providing existing senior noteholders with a fixed value component at a premium to current market value and allowing bondholders to retain their senior position in the capital structure with significant downside protection and the potential to benefit from any upside.

Holders of existing equity will receive 90% of the new common equity.

The bondholder group said in its letter that it believes the bondholder proposal will allow the company to implement the Pemex proposal while maintaining the uninterrupted operational performance of the affected drilling rigs.

Under the bondholder proposal, a cash sweep mechanism would be included in the bond agreement, whereby 100% of the excess cash flow calculated on a monthly basis would be contributed to the issuer debt service account as soon as reasonably possible following receipt of any revenues or factoring proceeds from all drilling contracts.

The cash flow sweep would have a fixed duration of two years.

Additionally, the bondholder proposal states that the company’s annual budget would be amended, and operating, maintenance and repair expenses would not exceed $50,000 per day per rig.

Oro Negro said it is looking to meet with bondholders to discuss the proposal. The bondholder group also said it is “ready and willing” to meet with the company and its stakeholders on the terms of a consensual restructuring.

The oil and gas services company is based in Alvaro Obregon, Mexico.

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