Max Petroleum to refinance and restructure outstanding debt facilities

By Caroline Salls

Pittsburgh, Nov. 27 - Max Petroleum plc plans to implement a refinancing and a comprehensive restructuring of its outstanding debt facilities, according to a news release.

The company said the terms of the restructuring, which include the refinancing of its existing senior credit facility with Macquarie Bank Ltd. and its $85.6 million 6.75% convertible bonds, have the support of Macquarie Bank, bondholders representing more than 90% of the outstanding bonds and the company's major shareholders representing roughly 30% of Max Petroleum's outstanding ordinary shares.

"The future opportunities for Max to grow production and reserves in the post-salt remain exciting and offer valuable upside to our shareholders," president and chief financial officer Michael Young said in the release.

"This refinancing enables us to focus on maximizing value through the drill bit by implementing our post-salt drilling program and to remove the overhang of debt that we previously faced coming to maturity in 2013."

Restructuring terms

The key terms of the restructuring include the following:

• The group has entered into a new $90 million senior secured credit line agreement with SB Sberbank JSC.

The Sberbank facility will be available to draw down at the company's discretion in two tranches, including up to $60 million in December, conditional upon the approval of the restructuring by shareholders and bondholders and up to $30 million as soon as specified conditions are met, including the registering of security and obtaining requisite government regulatory approvals.

The conditions are expected to be completed in March.

The interest rate on the Sberbank facility will be 11%, and the loan will mature in November 2017.

The approved uses of the Sberbank facility include repayment of the existing senior credit facility with Macquarie Bank, funding the cash portion of the tender offer to be made to bondholders and funding the company's shallow drilling program.

Sberbank Group will be granted a call option over 197 million shares in Max Petroleum held by Macquarie Bank;

• Cancellation of the company's existing senior credit facility with Macquarie Bank whereby Macquarie Bank will receive $47 million plus all accrued interest in December and a further $3 million in March 2013 in full settlement of all monies owed by the Max Petroleum group;

• Bondholders will be offered a combination of cash and shares as consideration for the proposed restructuring of the terms of the bonds.

Bondholders will be invited to participate in a tender offer under which they may tender bonds to the company with total principal amount of up to $17.1 million.

The company will pay a cash amount representing 50% of the principal amount tendered to tendering bondholders, with a maximum payment of $8.6 million.

The balance of the principal amount of the bonds, including capitalized interest, will be converted into shares at a price of 5p per share in two tranches.

The first tranche of up to $56.7 million of bonds and accrued interest will be converted into 709 million shares in December, with the remaining outstanding bonds to be mandatorily converted following the receipt of requisite Kazakh regulatory approvals, which are expected in the first half of 2013.

Until conversion, the terms of the remaining outstanding bonds will be modified so the coupon will be 10% with interest payable in kind, and the maturity date will be extended to March 8, 2018. However, the company said these remaining bonds are expected to convert into shares in 2013.

Shares issued to bondholders as part of the restructuring will be subject to a 90-day lockup from the date of the initial conversion.

The company said it expects a total of 919 million shares to be issued to bondholders under the restructuring;

• Following completion of the restructuring, the group's total debt will be reduced to about $90 million from about $140 million, with net cash of $30 million made available for drilling future production and exploration wells and associated expenses;

• Conditional upon the implementation of the restructuring, the company has agreed to appoint a non-executive director nominated by the bondholders to its board of directors;

• The company intends to reprice its outstanding options held by employees with exercise prices above 5p down to 5p per share, as well as issue additional grants at 5p per share to bring the total number of options outstanding up to 10% of the company's fully diluted shares outstanding post-restructuring.

Any new grants will vest over a three-year period with no vesting to occur before the full conversion of the bonds into shares; and

• Sberbank CIB is acting as the exclusive financial adviser to the company in connection with the restructuring.

Bondholders and shareholders are expected to vote on the restructuring at meetings to be held on Dec. 20.

Max Petroleum is a London-based oil and gas exploration and development company.

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