Tullow Oil plc has announced pricing its much anticipated US$ 1.8 billion senior secured bond at 10.25 percent, indicating how much interest to be paid to holders of the bond.
According to the oil major, this agreed interest on the senior secured bond are payable semi-annually, starting from May 17, 2021, when the transaction is hoped to complete. However, the bond offering is subject to customary conditions, which were undisclosed in the release published yesterday, May, 6 2021.
The company had indicated a week earlier that the bond has restrictive terms. This notwithstanding, it has applied further restrictions to dividend capacity.
The new bond announced last week, was to replace the company’s reserve-based lending (RBL) facility. Tullow indicated that the new bond offering will mature in 2026, while the revolving credit facility matures in December 2024. That said, proceeds from the bond sale will allow for the settlement of payments due this year and in 2022
Specifically, Tullow Oil plc aims at using the proceeds to retire and strike out of the company’s liabilities. Also, the proceeds will target redeeming in full the Company’s convertible bonds worth US$ 300 million this year and senior secured notes worth US$650 million due 2022. Furthermore, the proceeds will target payment of fees and expenses incurred in connection with transaction.
Restrictive terms in bond transaction and rating outlook
Among the restrictive terms on the US$1.8 billion secured notes include the condition that the bond is unregistered under any securities act or state securities laws in the US or any jurisdiction. The company also stated that only qualified institutional buyers in the United States are eligible to purchase the bond.
“This press release does not constitute an offer to sell or a solicitation of an offer to buy the Notes and shall not constitute an offer, solicitation or sale of any securities in any jurisdiction where the offering would not be permitted.
“… contains information about a pending transaction and there can be no assurance that this transaction will be completed.”
The international rating agency, Moody’s Investor Services has assigned a B3 rating outlook to Tullow Oil plc. With regards to the payment of dividends, Moody’s indicated that it does not expect Tullow to pay dividends within the medium term.
This is on the back of substantial interest payments and huge investments in capital expenditure that Tullow has to satisfy on its outstanding debts. Moody’s again noted that some operational risks are imminent regarding Tullow’s drill of oil wells. The rating firm’s position is that Tullow Oil plc is likely to face some difficulties.
Moody’s indicated that the bond issuance will potentially reduce the existing debt on the company’s balance sheet. Also, that this action when successful will substantially improve the company’s liquidity profile.
However, operational improvements that have bounced back since 2020 are likely to improve the company’s performance, Moody’s noted. This is notwithstanding the impact of the pandemic and the risks or volatilities in the oil market.
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