Premier Oil PLC (LON:PMO) has announced the terms of a refinancing that promises to remove uncertainty for investors.
The company says it has preserved headroom of its prior facilities and all maturity dates are now being aligned to May 31 2021.
"The agreement of the long form term sheet with representatives of our private lenders marks a significant milestone for Premier,” said Tony Durrant, Premier Oil chief executive.
“We are grateful for our lenders' continued support, which reflects the high quality nature of our asset base, the strong recent operating performance and our plans to deliver value for all of our stakeholders."
Premier Oil highlighted that it is producing at a rate of 80,000 barrels oil equivalent per day and it anticipates a significant step-up in output when the Catcher field comes online later this year – and that will materially enhance cash flow.
The company said that it will prioritise its enlarged cash flow to reducing overall debt levels, meanwhile, it will invest selectively into its unsanctioned projects.
New debt covenants have been agreed with the lenders, including a requirement for net debt to be reduced to less than US$2.95bn by the end of 2018. Demands on the group’s net debt to earnings is eased, the company can have up to 7.5 times until the end of this year before reducing to 5 times by the end of 2018 and down to 3 times in 2019. The interest cover ratio is reduced to 1.85 times until 2019 at which point it rises to 3 times.
The refinancing will give the lenders greater margins, an increase in fees and the lenders will also receive equity warrants equating to 90mln shares (giving them the option to acquire a 15% stake at a price of 42.75mln per share).
Lenders will have some governance controls, including the right to approve annual capex and exploration budgets as well as acquisitions and disposals. They will also have the right to final sanction of any significant new projects.
The majority of the new debt terms apply to the group’s revolving credit facility, term loan, US Private Placement notes and Schuldschein notes, meanwhile its retail bonds are similarly being amended and key amendment terms have also been agreed with convertible bond holders.
All elements of the refinancing are expected to close in May.
“The details of much of the re-financing package are in line with previous soft guidance,” said Caren Crowley, analyst at Davy.
“Amended financial covenants look comfortable relative to our forecasts, and equity warrants to private lenders would incur a relatively benign 7.6% dilution, based on yesterday’s closing price.”