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Some will balk at the 10.25-10.5% pricing, and I was surprised it wasn't closer to 9% but this is the reality. Talks of 6% was always too bullish. But the bond will be done.
The Company has now got the visibility and cash to fund the CAPEX in the next couple of years.
Equity holders are now subject to the success or otherwise of these. Good luck all.
See below for details on Bond
Bond will be done this afternoon - books close at 3:30 UK time. Price talk 10.25-10.5%
Slight change in the covenants -
Amending the definition of restricted covenants to include the 2025 bonds (i.e. the Company can't repay the 2025 while this new bond, 2026 maturity is outstanding).
Removing the ability to do $150m of share purchases
Limitations on restrictions on dividends
Hi JJ,
Would you mind confirming the piece around 2025 bonds, so this can't be paid until the main 2026 bond or what exactly?
Regards,
D
Wow 10.5%! Savage, if true!
Dear God, what is left for equity holders??
I can't understand why this information is not made readily available to shareholders. After all, they own the company.
All IMHO DYOR
Best
Happy
"What's left for the equity holders"? Erm....all the equity.
contact happy here if you are annoyed https://www.odey.com/about-odey/who-we-are/
JJ,
How does Tullow now have the cash to fund capex in the years to come? There is no additional cash from this bond issue. Only replacing one debt source with another. As I have said before, capex will be funded from free cashflow generated from operations.
the bond being sold is definitely good news. Moody´s has announced that they will upgrade the company rating to B3 as well, once the bond is sold (the bond itself is already rated at B3).
@Supercooper and I guess everyone is right that with oil prices over 60 USD Tullow will have enough free cash flow to bringt debt down to 1 bn in 2025 as the CEO has announced. And - also to quote Rahul - with an oil price higher than that, deleveraging will be significantly faster.
Everyone invested here long term is very probably counting on oil prices going to 80 USD this year. With the certainty in the market that short term liquidity isnt an issue any more, Tullow will be repriced sooner or later and will see the same price upgrade as other oil producers having lots, but managable debt with positive free cash.
Tullow was in a terrible situation a year ago when Rahul started. Tullow was in a difficult situation even a month ago. With the debt managed, Tullow is in a very promising situation.
And Rahul plus management will have kept their word not to ask shareholders to help with the financing. We re not diluted and the debt will be payed back substantially in the next months and years.
Good news therefore in case @JJ.. s information is confirmed...
Short term going concern risk - removed
Risk of equity dilution/wipe out -removed
Risk of bond not being fully signed up -removed
This is now all about the business plan delivery and POO going forward. That's a big plus for LTH.
Bring on the recovery and gla lth
Supercooper -
Prior to this bond, the Company had to repay the 2021 and 2022 bonds, plus the amortisation on the RBL facility. This is cashflow that would have to be paid out. Now they no longer need to repay these - having extended the debt to 2026 so no amortisation means they have "free" cash to invest in CAPEX. In addition, there is the undrawn $500m revolver which can be drawn down.
If the deal didn't happen the debt repayment schedule would make it impossible to fund the CAPEX (as per capital markets day in November)
Darragh,
As this new bond is senior in ranking to the 2025 bonds, the 2026 New notes have entered a clause in the debt to prevent the 2025 been repaid before them.
In practice, this means than in 2024/early 2025 the Company will have to refinance the whole finance structure (both 2025 and 2026 together) or issue new debt with longer maturity to repay the 2025 notes. I.e. The 2026 note holders don't want the Company to use cash on balance sheet etc to repay the 2025's and leave the 2026 as the only debt outstanding.
Happy - 10.25-10.5% is expensive but given where the debt was trading prior to the announcement it isn't a surprise. Given the Company think they can generate IRRs of 80% plus as per their presentation in November, then 10% is cheap and sensible investment for the equity.
Thank you for explaining that JJ!!
JJ can I kindly ask where you received/found this information regarding the bonds and coupon rates of over 10% also the share buy backs and future dividend restrictions? Thanks in advance.
Get real!
First, they amputate growth projects: Uganda, EG
Second, they commit to pumping 90% of capex - which will need to be funded out of operations (so technically, it doesn't exist yet!) into mature / declining assets in Ghana just to stand still.
Third, IF JJ is right and the coupon is 10.25-10.5% they have failed to roll over existing debt and ended up hiking their interest bill by potentially 50%. I'll do the sums later.
All hearsay until the official announcement. But if that's what success looks like, I'd hate to meet failure.
Back to 10p if that's the deal.
All IMHO DYOR
Best
Happy
If it was going back to 10p Happy then surely it would be on the way already as there are (contrary to what you want to believe) smarter people out there than you analysing this. Let's face it, you have shorted it and all it has done is go up since.......
Available to QIB, so from my broker. Minimum size is $200k so not available to retail unfortunately. The prospectus will be public when deal is closed (7-10 days after).
Nice coupon rate, JJ are you tempted to pick up any?
minimum size is $200,000 - so above my risk threshold. I would like to, but UK companies rarely cater for private investors in the bond space. Especially in High Yield
JJ,
If it wasn't for the complexities, I'm sure a consortium from this board could be formed.
JJ
They had net 2.4bln debt before the new bond with 800mln cash which was left there pending the outcome of the bond negoiations - in other words they would pay off 2021/2022 bonds if neccessary. They have still got 2.4bln in debt after the new bonds are issued. If the bond issue was a failure it would be the 2025 bonds that would cause the problem.
Super, I believe it was 2.4bn net debt
Kilman, thats what I said - after the 800mln was taken into account. If they paid the bonds with the cash they would still have 2.4bln debt.
JJ,
I like your thought of this board members forming a group fund and taking a part of the bonds, perhaps we should take a poll of those interested?
Regards,
Supercooler,
As of Dec2020, Cash of 800m, RBL of $1,430m, Convertible (July 2021) $300m, April 2022 bond of $650m and Mar-25 bond $800m. Total Gross Debt of $3,180m, net $2,375m
After transaction:
Cash of $175m,
New Bond May-26 $1,800
Existing 2025 bond $800m,
Total Gross Debt $2,600, Net Debt $2,425m.
So correct, no change in Net debt ($50m increase - irrelevant). But this new debt gives the Company an Revolver (overdraft) which is currently undrawn of upto $500m. So that is additional funding.
But, over next 18 months, they would have to repay $300m convertible bonds, $650m of 2022 bonds and some amortisation of the RBL facility totalling c. $410m. This would have used up all the cash on balance sheet and more.
This deal enables them to confirm multi-year drilling program and removes the 18 month liquidity test.
I hadn't the Company making Free cashflow in 2021 and 2022 to fund further CAPEX and with the debt repayment above it would not be able to do future CAPEX. Now it can.
Good luck
Business like Tullow can't operate with no cash. Needs cash to fund option trading etc. And you are forgetting the amortisation on the RBL facility.
Raffles....
No intention of pooling members to fund purchasing the bond. Not a chance. Good luck all.
Should we expect an RNS to after hours or Friday am or is it likely to be next week before we hear further?