Iona Energy seeks to amend 9˝% bonds to allow financial flexibility

By Toni Weeks

San Luis Obispo, Calif., March 12 – Iona Energy Inc. subsidiary Iona Energy Co. (UK) plc is seeking bondholder approval to amend its 9˝% senior secured callable bond issue due 2018 to provide the issuer with more financial flexibility, according to a notice from bond trustee Nordic Trustee ASA.

Since the bonds were issued on Sept. 27, 2013, Iona said it has experienced a number of challenges that have “significantly reduced” projected cash flows of the parent company. Those challenges include continued production interruptions, recent declines in the Brent oil price, a delay in first oil from the company’s Orlando asset and incurred costs on an attempted acquisition.

Iona said it informed the markets on Dec. 18 that these factors meant it may be in breach of some of the bond covenants during the next 12-month operating cycle.

In addition, on March 5 the company informed the market that, based on unaudited management accounts, it will likely be in breach of one or more of its covenants upon publication of its audited annual financial statements for the year ended Dec. 31 and that constructive discussions were ongoing with some of the issuer’s largest bondholders to increase financial flexibility for Iona.

In order to allow Iona and the issuer sufficient time and financial flexibility to review funding alternatives in relation to the Orlando asset and/or the refinancing of the bonds, Iona is seeking amendments to the bond agreement to provide

• Full relief from financial covenant testing until first oil on the Orlando asset;

• Reduction of minimum liquidity requirements and changes to the cash management provisions;

• Removal of the Huntington cash sweep;

• Revision of the installments schedule;

• Payment of interest in kind instead of in cash until the earlier of first oil and Dec. 31; and

• A waiver from the obligation to hedge 50% of 2016 oil production.

In consideration for approving the proposal, Iona will issue to bondholders warrants in an amount equal to 10% of Iona’s ordinary share capital as of the effective date. Each warrant will be exercisable at C$0.05 per share.

A bondholder meeting will be held March 27 in Oslo.

According to Nordic Trustee, bondholders who together hold more than 40% of the principal amount of the outstanding bonds have indicated their support of the proposal.

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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