Afren has said it reached an agreement in principle with certain noteholders under its 2016 Notes, 2019 Notes and 2020 Notes and a majority of the lenders under its existing US$300 million Ebok credit facility to address its short and longer-term funding needs and recapitalise its capital structure.
The agreement regards the key terms of a proposed interim funding and recapitalisation of the Group, which is intended to result in the provision of US$300 million of net total funding before the end of June 2015.
Afren adds that it has considered a range of proposals and alternatives from both existing stakeholders and third parties and concluded that a transaction with its current creditors offers the best alternative that is capable of being implemented.
Afren has reached a conditional agreement with noteholders representing approximately 42% of the outstanding principal amount due under its 2016 Notes, 2019 Notes and 2020 Notes (the Ad Hoc Committee) for the provision of US$200 million in net interim funding in the form of a super senior private placement notes, which are expected to be issued by the end of March 2015 (the Interim Funding).
This Interim Funding will provide initial liquidity to the Group and provide time to implement the required steps towards the completion of the recapitalisation transaction that has been agreed in principle between the Ad Hoc Committee and a majority of its lenders under its existing US$300 million Ebok credit facility.
The Ad Hoc Committee, together with lenders representing more than 67% by value of the lenders under the Ebok Facility have also agreed in principle to implement a financial and capital restructuring to secure the Group’s future.
The key elements to the Recapitalisation include:
- Refinancing of the PPN through the issuance of US$321 million new high yield notes which will provide an additional US$100 million in net cash proceeds to the Group
- Debt-for-equity swap: 25% of the 2016 Notes, 2019 Notes and 2020 Notes will be converted into equity with the remaining existing Notes being reinstated and extended to 2019 and 2020 at an annual coupon of 9.1%
- Extension of the Ebok Facility until 2019, alongside a re-profiling of the amortisation schedule under such facility
- Issue of new shares to the existing noteholders who subscribe for the PPN and the New Senior Notes
- Up to US$75 million equity offering to all shareholders to provide the opportunity to participate in the Recapitalisation and provide additional liquidity to the Group
It is anticipated that the Recapitalisation will be completed by the end of June 2015. The issue of the PPN and implementation of the Recapitalisation are subject to entry into and completion of further documentation and formal approval by the Participating Noteholders, each of the lenders under the Ebok Facility, the lenders under the Group’s other secured facilities and the Group’s principal joint venture partners.
“We are confident that Afren will emerge from this difficult period as a financially stable company capable of delivering growth in 2015 and beyond. This has been made possible because of the constructive discussions we have had with the Ad Hoc Committee of our largest bond holders as well as the Group’s senior lenders and operating Partners which has resulted in the funding announced today combined with a longer term focus on recapitalising the business,” says interim CEO Toby Hayward.
It is intended that the Recapitalisation will be implemented pursuant to a scheme of arrangement of the noteholders under the 2016 Notes, 2019 Notes and 2020 Notes.
If shareholders do not approve the Recapitalisation, it is expected that the amended economic terms of the New Senior Notes, and the amendment and reinstatement of the Existing Notes, together with the requirement to initiate a sale of the Group’s business, will mean that existing shareholders would be unlikely to see any return on their current investment.
Both the provision of US$200 million of net interim funding and its replacement with the US$300 million in high yield notes (net) can however be made available to the Group, without requiring shareholder approval, therefore ensuring that the short and longer-term needs of Afren are met.
If shareholders do not approve the Recapitalisation, there will be no reduction in the amount due under the 2016 Notes, 2019 Notes and 2020 Notes (by way of a debt for equity swap) and the economic terms of the New Senior Notes will be amended so as to increase the return to holders of such notes, the combination of which is expected to result in existing shareholders being unlikely to see any return on their current investment.
An extraordinary general meeting of shareholders will be called in due course to seek shareholder approval for the terms of the Recapitalisation.