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Tim - it's only a 2 year loan if the bonds aren't refinanced. It is an insurance for the banks and a handy milestone to be slipped in. The chances are extremely low and if it needed to be repaid then we would be in trouble. A meteor hitting the FPSO is also a potential threat.
Some clever sod from tbe banks has added it and EnQuest are legally obliged to RNS it. It actually looks a bit silly and unnecessary to me. Of course our position is strengthening and it is in the bank's interest to make loans that will be repaid and collect juicy fees and interest. They would rather lend for 5/7 years than 2 years and be supportive of a company growing fast. I think our guys are fierce enough to remind the banks of our strengths. There are other lenders and that is competetive too but it is better the devil you know for both parties. I'm not concerned of a potential clause that is probably meaningless in the larger scheme of things.
Perhaps the amortisation schedule is a key to the puzzle...could be that we have to pay off instalments with final one being at the end of May 2023. A way to restrict spending and ensure debt reduction?
They basically want GE and existing loans paid off in 2 years, then give them the headroom back if the bonds get refinanced?
This type of facility is not really supposed to be used as long term debt.
I hear what you are saying. I've heard the FD mention a couple of times that a 500m / 500m split would be a good place to be.
However, I'm still not sure the option to extend the new loan is ours. Here's the wording from the RNS...
"Upon refinancing of the Group's existing high yield bonds, the maturity of the new facility is extended to the earlier of seven years from its signing date, or the point at which the remaining economic reserves for all borrowing base assets are projected to fall below 25% of the initial economic reserves forecast.
In the event the maturity of the new facility is not extended, the amounts drawn down under steps 1 and 2 amortise such that they are fully repaid by June 2023."
Anyway, I think I'll make this my last post on the subject as I've got a feeling I'm embarrassing myself. Whatever the reality of the new agreement is, we should should know pretty soon anyway.
I never thought of it that way round!
But I read it as a 2yr loan with the option to extend, as Pelle said Enquest FD has already said they saw a $500m Bonds and arranged loan of $500m being a good long term objective. I see having the second part of that plan sorted being an advantage in getting good terms for the refinanced Bonds. I saw TLW refinance from weekness and get $1.8bn at 10.25%
I should have thought the banks have agreed to a 5year loan extension with Bond requirements being reassessed at that time. They would likely be happy if you are using the extension to clear the Bonds but not if you increased the Bonds to repay the 2 year loan. The aim should be to reduce our costs for credit.
It's good to be proved wrong :-)
So, just for clarity... the consensus is that the possible 5 year extension is a positive thing / a condition that won't be invoked?
I'm just worried that the default is a 2 year loan, extention being contingent on the refinancing of the bonds....
Doesn't that give the bond holders a big advantage. Supposing we don't repay them in 2 years, what to stop them from doing nothing and claiming first dibs on the company / owning it? (This bit is probably incorrect.)
Like I say I'm completely out of my depth and probably just being paranoid.
I think you are completely misreading my post, but that's life
Tigar - I don't have to give my thoughts to you. You may not have noticed but I do not work for EnQuest. Explaining that the bank loan and the bonds are inter linked doesn't mean they are synchronised and the documentary credit departments always have legal advice and lawyers will always edge towards caution. This isn't a book club and we each have our own interpretation of what is said, and what can be said in an RNS. I would imagine they are allowing for final decisions when EnQuest have made a decision on the bonds. I have no idea how much information EnQuest are onliged to give to the banks regarding bond negotiations. I'd guess that it is commercially sensitive. The 2 years are an additional clause unlikely to be put into play. I thought that was self-evident but you appear to want a cast iron guarantee. Nobody can give that.
Agree they are lining up the ducks and the Banks have cooperated to that end by agreeing to a 5 year extension now, if they are happy at the 2 year stage this is I believe a master stroke in the Bond negotiations as we have no barrels to be held over so we may well be back to 5-7% bond deal. Looking forward to prospectus to find out the rate on the loan and the extension.
Of course if oil price plays ball Bonds could be repaid and any new ones will be for the next project. As it should be.
Thanks for everyone's input. All sounds plausible.
The question was vague as I don't really understand how it all works. I guess I was / am a little freaked out by a +600m loan over 2 years that coincides with the bond maturity. I would've been more reassured if the loan was immediately for 7 (or even 5) years, leapfrogging the bonds. Maybe as was suggested, this is to avoid the bonds being paid back by the loan? I guess we'll know more pretty soon. Good to know that bonds are usually renegotiated in good time... less stress for me / pressure on the sp in 2 years.
Hopefully it's all academic anyway. It feels like we finally have a good wind and personally I hope we continue to be cautiously ambitious. I think AB and the CEO are doing an excellent job and the financial arrangements seem to well thought out when they have a choice. I think they've been pretty open about stuff but reading between the lines it'll be a relief to pay off the array of small side loans we've been forced into. Doesn't seem long ago we sold our offices for 50m to pay the rent.
Good luck lth.
Jan - I see what your'e doing there, trying to trick Pelle into getting more penalties, really it's entrapment.
Great explanation, I have the same numbers. which should leave plenty to pay some healthy dividends to us.
Assuming around 2b shares after GE deal and refinancing, then $120m from that massive fcf figure would give us a nice 6 cents or (in English money) 5p dividend. Plus they would still have another $400-500m to do more deals !
Didn’t they say before they want to have 500m bond + 500m RBL. RBL is in place.
So now next 2 years they will pay down RBL close to 0 and the PIK on bonds.
And at refinancing bonds you lift the RBL again and make a new 500m bond.
It’s about 700m needed for this over 2 years with a FCF of around the double during the period.
How does that sound?
Romaron you have not given your thoughts on the 2yr loan having the option to extend to 7years why not just give 7 year loan?
my thoughts are that it is because they will only extend to 7 years if they approve of Bond refinance. They will not approve a TLW new Bond situation. And will look at our new Bond proposals at the time and rubber stamp approval of extended loan facilities, or have the right to walk. But they are confident enough in Enquest to give the extension option now! That gives Enquest the advantage in the Bond negotiations to come.
Good post Romaron.
I suspect things might be clearer when we see the full prospectus. Hopefully soon!
Hi Tim - not sure I understand the question but the RNS was quite clear as it covers known unknowns and allows for unknown unknowns. For that reason it is short because they simply don't know what tomorrow brings but they have to try. However, many here make the mistake of confusing the RBL or whatever fancy name is attached to what is effectively an overdraft and the bonds. If you treat them seperately it does become clearer.
The bonds tend to be for specific future projects and the NS is a dynamic basin whatever the ESG narrative says. They also carry more risk as the longer future is even harder to predict. As PI's we kinda look at the debt and maturity dates and say if things carry on as they are we stand a good chance of paying off all debt. That is not the intention of EnQuest and they continually need to increase reserves to remain a going concern and debt is usually an essential part of the model (Shell and BP have debt). We are now in the lucky position (if Brent & Govts play ball) to possibly treat EnQuest as a cash cow and drive fields to end of life. That would be a mistake imo as there has probably never been a better time to take advantage of the newer slimmed down version of oil production in older basins.
My own pet hope is that they'll develop the BBK Hub (Bressay, Bentley, Kraken) and that would probably require bond support. However, with the current FCF we won't necessarily need to renew the existing bond amount. It could be higher, lower or unnecessary (known unknowns). It is usually the case to renew bonds with a decent margin to spare (say 1 year) and like with maintenance it is often more efficient to complete other tasks at that time, which is what we are seeing. There are plenty of balls in the air but the company deserves credit for issuing this RNS. It may have been pressure from Pi's, some of whom seem to think they deserve a seat on the board because they have all the answers.
There is always pressure between the RBL and Bond lenders with covenants and penalties that make things extremely complicated with equity seldom being the beneficiary when things go wrong. Then there is the order of preference and they all interlink.
In answer to the 2 year question it seems to me that EnQuest are robustly telling the lenders of the "new facility" that they will be able to repay by June 2023 whatever happens with the bonds and is also ma signal to the bond holders. There is clearly a tacit understanding that for the moment bond holders like what is happening and are onside judging by the pricing of the existing £RB and $HYN.
I don't know if any of this helps or is even accurate but I think I'm warm. The dates are indicative because nobody wants to be held to a date that may be unworkable or has to be moved.
I thought it was more that when Bonds mature they don't want Enquest doing a TLW and issuing more Bonds and also having $750m of credit with them they have given OK to extend the $750m if they are happy with the amount of Bonds on their refinance? perhaps if POO stays high the $750m will be enough to clear them up or half the number of new ones?
I would guess they don’t want the loan to be used to pay off the bonds. No idea why they would be concerned about that. Romaron might know.
Bond holders clearly not bothered and pricing in getting all of their capital back by the due date.
If I'm reading the rns correctly our new loan is for 2 years, extendable to a max of 7 years if / when the bonds are refinanced.
Is there any significance to this? Does it suggest that the bonds will also be refinanced in the near future (hence the rise in their price?) or is it a negative thing... the banks only willing to give us 2 years?
I guess I just expected 5 years, although I don't know where I got that figure from. (Is that how long the previous arrangement was for?)
Thanks in advance for any thoughts on this.
Paint one on the back of Gretna.