Challenger Energy Group PLC (AIM:CEG, OTC:BSHPF) surged 30% higher in early trading on Friday after investors cheered the clearing of its convertible loan notes.
Shareholders may have been concerned initially when the group revealed it had secured a convertible loan facility to help with cash flow, as it could have led to dilution as lenders converted their debt to equity.
However, the London-listed firm confirmed today it has taken out a short-term bridge loan of £346,500 to repay and cancel outstanding convertible loan notes, reducing investor worries and sending the shares rocketing.
Key terms of the bridge loan, which is unsecured, are a 12% per annum coupon, accruing monthly, and a maximum term of six months with repayment to be triggered earlier on completion of the Cory Moruga asset sale or a farm-out of its assets in Uruguay.
Warrants will also be issued to the bridge loan provider at 0.1p per share.
Eytan Uliel, Challenger’s chief executive, said: "Eight weeks ago, we secured a convertible note funding facility for up to £3.3 million. As we explained then, our immediate funding requirement was relatively minimal, in that we were seeking to bridge a short period of time until receipt of expected cash inflows.
“We thus drew only a small portion of that facility, although we saw value in putting a much larger line of funding in place, in case it was needed it in the future.
"However, given the progress in seeing those expected cash inflows in the required timeframe, we have moved to refinance and cancel the facility and replace it with a more 'traditional' loan, with attached warrants.
"We will thus continue to have the funds needed to bridge us through the current period, although we will no longer have a bigger facility in place to support us beyond that.
“Today's transaction will also mean that the item of most concern to our shareholders about the previous convertible facility - the potential for future dilution at unknown value from future conversions and any future facility draw-downs - is removed," Uliel said.