Iona Energy seeks consents to amend 9½% bonds' definition of cash

By Angela McDaniels

Tacoma, Wash., April 16 - Iona Energy Inc. subsidiary Iona Energy Co. (UK) plc began a consent solicitation for its 9½% senior secured callable bonds due 2018, according to a notice from bond trustee Norsk Tillitsmann ASA.

Since the bonds were issued in September 2013, the issuer has found a mistake in the definition of cash and cash equivalent in the bond agreement. The definition does not include funds standing to the credit of the escrow account and the BP structured energy derivative escrow account.

The mistake also appeared in the term sheet, but all other parts of the documentation used in the marketing of the bonds assumed that cash and cash equivalent should include funds in the escrow accounts, the issuer said.

In addition, the financial models prepared to assist in structuring the bond issue also assumed that funds to be held in escrow should be included when calculating the net interest-bearing debt, and the financial covenant levels were determined on this basis. As a result, the company is unable to satisfy the financial covenants.

Without amending the definition of cash and cash equivalent, the company will not meet the required leverage ratio of no more than 3 times for the financial year ended Dec. 31 and the quarter ended March 31. Failing to meet the ratio for the quarter ended March 31 would result in an event of default.

"Needless to say, a covenant breach only a few months after the issue of the bonds was not the intention of the parties," the company said in the notice.

If the amendments are approved, they will be applied retroactively from the issue date.

Bondholders will vote at a meeting at 7 a.m. ET on May 6 in Oslo.

The holders of at least half of the bonds must be represented at the meeting in person or by proxy in order to form a quorum, and the holders of at least two-thirds of the bonds represented at the meeting must vote in favor of the resolution in order for it to pass.

Iona Energy is a Calgary, Alta.-based oil and gas exploration, development and production company focused on the United Kingdom's North Sea.

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