Indonesia’s KrisEnergy defends restructuring terms for 6¼%, 5¾% notes

By Angela McDaniels

Tacoma, Wash., Nov. 28 – KrisEnergy Ltd. emphasized that the terms of the consent solicitation and restructuring for its 6¼% notes due 2017 and 5¾% notes due 2018 are final and will not change and that it will face the risk of default on the notes and its other debt if the consent solicitation is not successful.

As reported on Nov. 16, the company is seeking noteholder approval to exchange the S$130 million of 6¼% notes and S$200 million of 5¾% notes for new senior unsecured notes.

Noteholders will vote on the company’s proposals at meetings at 8:30 p.m. ET on Dec. 8 in Singapore.

The new notes will have maturity dates five years longer than the maturity dates of the existing series being exchanged. Coupons for the new notes will be up to 7%, comprising a mandatory cash coupon of 4% from the fifth coupon payment on and an additional coupon of up to 3% linked to oil prices.

The company is also asking holders to irrevocably waive any and all existing events of default or potential events of default under the existing notes trust deed and the terms and conditions of the existing notes that may have occurred or may occur as a result of the adoption of the proposed restructuring plan.

The company also wants to replace existing financial maintenance covenants with a debt incurrence covenant.

“This restructuring is essential for the survival of KrisEnergy and without which there is no guarantee that the company can continue to operate and meet its various obligations,” Jeffrey S. MacDonald, KrisEnergy’s interim chief executive officer, said in the Nov. 16 news release.

Timetable

In a Nov. 24 news release, the company released a list of questions it has been asked during informal consultations with noteholders.

Is there time for the company to improve the terms of the new notes?

No. The company said approval is required by Dec. 9 in order for it to access $35 million of bridge commitments to pay the interest due Dec. 9 on the 6¼% notes. Non-payment of the coupon would be an event of default that would lead to a cross default on its other debt.

“Along with significant business disruption, risk of losing customers and suppliers, loss of key employees and technicians and a shortage of cash to continue to meet its business needs and operating as a going concern, an event of default may also lead to winding up proceedings being taken against the company by its creditors,” KrisEnergy said in the news release, adding that any such proceedings risks the forfeiture of assets to the host governments under the terms of the applicable petroleum licenses.

New coupon structure

What is the rationale behind the new coupon structure?

The company said the purpose of the new coupon structure is to preserve short-term flexibility and liquidity for the company while sharing future potential upside with noteholders.

Kris Energy noted that when the 6¼% notes and 5¾% notes were issued in 2014, the average monthly price of Brent crude oil was more than $100 per barrel, in contrast to recent prices of between $40 and $50 a barrel.

According to the company, the coupon on the new notes is the best it can offer.

Repayment structure

What is the rationale behind the five-year extension, and why is there no principal amortization in the latter years or any cash sweep mechanism?

The company said the 2022 and 2023 maturities of the new notes are necessary to give it enough runway to execute its new business plan without severely testing liquidity.

The company did not include an amortization feature in order to preserve as much liquidity as possible to fund the development of net present value-positive projects.

As for a cash-sweep mechanism, the company said this feature is more appropriate for companies with stable and predictable cash flow.

KrisEnergy noted that the new notes will have a par call option at any time.

Financing carve-out

How can noteholders be comfortable with the development financing carve-out in the new notes?

The company described the ability to raise limited recourse debt for development financing purposes as essential to the impletion of its new business plan, its long-term sustainability and its ability to increase project returns.

The company noted that under the terms and conditions of the new notes, the principal amount of any limited recourse development finance debt it issues will not exceed the cost of the assets being acquired or developed with the proceeds, and any security given on the debt will not extend beyond those assets.

Projections

Will the company release the projections on which the new business plan is based?

“The company does not, in good faith, believe that there is any value in publishing, disclosing, disseminating or distributing information that contains forward-looking statements in the form of forecasts and/or projections as to production levels, earnings or other future performance metrics or indicators. Any such information would be based on internal management estimates which would not have the benefit of an independent third-party assessment thereof,” KrisEnergy said in the news release.

In addition, the company said that to share this information on the basis of entering non-disclosure agreements with some, but not all, noteholders would lead to risks of selectively disclosing potential non-public material information.

“In light of the foregoing, it is not practically feasible to either negotiate and sign non-disclosure agreements on the same terms with all investors in the existing notes, or alternatively, to publically disseminate information which has not been independently verified and on which investors can reliably base an investment decision.”

Standard Chartered Bank (+65 6596 9645) is the solicitation agent. Tricor Singapore Pte. Ltd. (+65 6236-3550, 65 6236-3555 or corporateactions@sg.tricorglobal.com) is the tabulation agent.

KrisEnergy is a Jakarta-based oil and gas company.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.