MEG adapts the Open Text model

Before Christmas, Waterloo, Ont.-based tech giant Open Text successfully completed a financing package that included a major equity raise — its first in about two decades — and a US$250-million high-yield f i nancing, which represented a reopening of an existing debt offering.

Now, in the first full work week of the New Year, a simi- lar joint deal is afoot, only this time in the oilpatch. Calgary- based MEG Energy Corp. i nitially planned to raise $ 357 million via a bought deal with investors being offered 46 million subscription receipts at $7.75 per receipt. Because of strong demand the issue was upsized to 58.1 million receipts that will raise $ 450 million. As well, three of MEG’s debt facilities — provided either by the banks or fixed-income investors — are set to be refinanced.

There is another aspect to the symmetry: Two of the three firms that acted for Open Text — Barclays and RBC Capital Markets, which were joint book-running lead managers on the equity offering, a deal largely sold to U.S. investors — are now acting for MEG Energy. BMO Capital Markets, MEG’s financial adviser on the transactions, is also the lead manager on the equity financing, which was priced at a 5.5- per- cent discount to the closing price on Wednesday. MEG’s shares closed Thursday at $7.96.

The parallels between the two deals aren’t exact.

Open Text was in the market for debt and equity because it needed to finance its US$ 1.6- billion acquisition of Dell’s EMC Enterprise Content Division. That acquisition was announced in mid- September. However the closing of the equity and debt financing wasn’t conditional on closing the Dell acquisition. Open Text returned to the debt markets about seven months after its initial foray: a US$ 600- million, 10-year offering at a coupon of 5.875 per cent.

For its part MEG Energy — whose shares have traded in the range of $3.64 to $52.68 over the past six- plus years and which hit a recent high of $9.52 last week — needed financial resources to be able to commence its oilsands “growth initiative” at Christina Lake this year. MEG plans to spend $590 million on capital expenditures this year, almost five times what it spent last year. The refinancing of its existing debt provides it “with a five- year window to grow the business and to pursue additional deleveraging alternatives.”

The debt changes secured by MEG — which suffered a credit downgrade last February — were substantial. For instance, the term of its US$ 2.5- billion revolving facility, which was set to mature in 2019, has been extended to 2021 — but reduced to US$1.4 billion. As of Sept. 30, 2016, none of that facility had been drawn.

As well, the terms of two of MEG’s term l oans are being changed: its US$ 1.2billion first- lien loan will be refinanced with a longer term to maturity as will its US$ 750- million offering of senior secured notes. ( The US$750-million offering that will now mature in 2025 will be priced in the context of the market.)

The circumstances under which the two equity financings close are also different. Open Text, whose equity offering was upsized to US$ 564 million, had no conditions. Irrespective of whether the acquisition closes — and it still hasn’t — the company will take the funds. MEG has a different approach: it offered subscription receipts to investors and in a break from the norm, made the closing of that financing conditional on all the debt changes occurring — and not on the closing of any acquisition.