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"Administrators would be the ones to work out how best to facilitate payment not the creditors."
Yeah, but I think I'm right in saying either a Board or Creditors can apply to the Courts for Administration, but the Creditors can apply to appoint an Administrator of their own choice.
As we know debt is a big problem for potential acquires, so then a creditor syndicate debt for equity swap and securing other creditors is attractive, it secure continuity of the business, one of the objectives of admin, and satifies the creditors. Crumbs there may be for shareholders, or any number of other outcomes.
"pat on the back"
Thank you, I appreciate that :)
But deramping it's not, it's discussing the reality of the situation. I don't know any more about corporate finance than many other retail investors, but I'm always willing to listen. I think the BP deal was good for everyone, but I also try to understand what other players in the capital of the company might be doing.
I think I'm correct in saying the projections were good if the deal went ahead and the oil price stopped at a reasonable level - then they'd eat through debt. Alas, it appears not everyone believes that. That's why there's some potential of rsistance to the deal, but again alas, tha takes place behind closed doors so we don't really know. They make say it's going through yet.
Not to mention that to my knowledge there are something like 40 creditors if memory serves me.
Getting their agreement on anything is a nightmare I’d imagine.
Devon, I’m not saying they can’t take control but that option to my mind is when a sale is out of the question or disposal of assets doesn’t cover the debt. Administrators would be the ones to work out how best to facilitate payment not the creditors.
Pmo have a lot off assets and if they demand payment then that’s what they would get. Assuming assets sale would cover, leaving equity holders with any crumbs.
To my mind they either accept Pmo extension offer or they demand payment for which a sale would be only way.
Lol, Devon do you have nothing else to do? This is relentless deramper, who’s paying you? You obviously know your corporate finance but how’s about you just give it a rest and see what happens eh? What’s your agenda? I’ll even give you your pat on the back if your right if that’s what your ego is after.
"8% is a fantastic return"
Not on risk adjusted basis if you think the BP deal won't deliver the long term de-leveraging the company has promised, if the BP deal delivers some de-levereging, but also increase the level of risk of default and decommissing costs then it's not a bigger enough return for the risk of default..and I'm presuming some of the creditors are resistant to signing off the deal for those reasons. If decommissionings costs are higher than anticipated and the leve of oil doesn't stay above $65 - it just makes the creditors risks greater.
Creditors take control of business all the time, that's why I gave the example of Debenhams.
That become a vehicle owned by a syndicate of it's larger creditors and they inherited the debt.
They look to secure continuity and settle the outstanding demands. If they belive that's possible without breaking the business up they will do so, they could look for a trade sale, but only if it didn't disadvantage the creditors further. If the creditor are willing to swap some debt for equity and service the remaining debt holders without breaking the business up , that can be be the best route out of Administration. Was hasn't happened with Debenham, so far, is any post Admin(2) corporate action like a merger.
But Happy why would they take such a risk? They are negotiating a new deal that will extend the debt for 4.5 years at a tad above 8%, for someone in the loan business, in the current climate, never mind the last few years of ultra low interest rates, 8% is a fantastic return, so why would they want to call in the debt they know PMO can service and risk a fire sale and possibly not get their debt returned, never mind interest they would earn over 4.5 years.
I realise you are playing devils advocate, but you have to add some reality instead of looking at the absolute worst case scenario. As for Chysaor they are more interested in the 4billion of tax losses so not so much the north sea assets, although if the BP deal goes through; debt sorted for 4.5 years; and more production online in first half of 2021, then someone might start sniffing around with 100K + of tax free production, well tax free to the tune of $4billion to claw back.
So to counter your absolute negative view, I say when the deals are done and PMO can look further than 6 months ahead, we will see some interest picking up, maybe a bid and a rising share price. If PMO can fight that off as oil rises to $50 range, then I see 50p+ in the share price in the New Year 1st Q.
So lets settle for somewhere in-between yours and mine as it is a more likely scenario.
Good luck LTT
My only issue with what you said is how can it be legal to pass on the company to another company with shareholders kicked out and creditors owning the company. Particularly if the debt stays as it is and they agree to extension to facilitate a sale.
If they call in the debt then administers would first seek a buyer or break the company up with first priority going to payment of debt to the the creditors.
IMHO
"But what makes PMO so different from other companies?"
It's greater leverage for one.
"Not legal, surely."
It can become legal if they decided to call in the debt, they or the Board, can then place the business in Administration. I guess that's what he's getting at. The company de-lists as part of the process, the shorts celebrate!, and then they pheonix the business with creditors being the holders and only equity. They then later merge 2 private business and the debt get secured against the newly created group. The Administrator would have to settle in favour of the creditos and that's their opportunity to take control. The old company, alongside with existing shareholders, gets dissolved a la Debenhams (but without the merger - so far) For my sins, I hold some of Debenhams defaulted debt.
Ok, so PMO share price has collapsed meaning its capitalisation is a fraction of its debt, but this is due to Covid and the uncertainty regarding debt roll over as opposed to the company fundamentals.
Production and interest charges amount to $28/b, maintenance and limited capital expenditure a further $10/b.
If BP goes through plus Solan this month we will be producing 95k boe with further 25k+ boe in H1, 2021 from Toulmont. There is no further major capital expenditure beyond this.
At current rates, before the above, we comfortably pay interest due and are still cash flow positive, albeit not reducing debt by significant amount, there is still prospect of Zama sale if only Pemex and the Mexican government could ever get their act together.
But what makes PMO so different from other companies?The whole world of business revolves around debt maturities being rolled over and renegotiated to mature at a later date.
With a $50-$60 oil price the company makes significant inroads I to debt pile.
As far as I can see Premier are currently significantly better placed than many businesses in this and other sectors, and only due to pressure from what looks like an unscrupulous lending group is the share price at this level.
Nothing illegal about protecting your interests.
When have creditors ever taken a significant haircut whilst allowing existing shareholders to retain equity?
Without waivers, PMO is in breach of covenants and creditors may call in the debt at any time.
All IMO.
Debt maturity is in half a year time.
Who knows what discussions are taking place but my money is on a transaction with Chrysaor.
Chysaor do not want the debt unless it is restructured but they clearly do see some long-tell value in Premier Oil's assets.
Had PMO received the necessary approval of 75% of one class of creditors, they would have said so. I think the creditors may be pressuring management for a shotgun marriage with Chrysaor. Such a transaction might involve a combination of management agreeing to sell some assets to pay back debt e.g. Zama, creditors agreeing a haircut with the remaining debt secured against the merged Chyrsaor/Premier asset base and creditors converting some debt for equity in the enlarged group.
If I am right, creditors will not approve the fund raising and they will seek to wipe out existing equity holders as part of a transaction with Chrysaor.
The attraction for Chrysaor might also be to get an immediate equity listing via PMO.
I think PMO's excellent management team might be arguing that existing shareholders at least deserve some equity in the enlarged group.
All will be revealed by 30 September when the current waiver runs out...