Athabasca offer irks noteholders

Tender terms link premium to amendments

Arefinancing plan put in place to help Athabasca Oil Corp. purchase certain thermal oil assets from Statoil Canada has upset some of its secured debt holders.

Not only are holders of the previously-issued $550 million in 7.5 per cent notes that were scheduled to mature in November bothered about the terms of the offer, they are also upset that they’ve been given a mere two weeks to decide.

“Anyone caught napping will miss out because no one in their right mind would want to tender past this week as they’ll only get 97 cents on the dollar and they’re normally callable at par,” noted one such holder who was peeved at another aspect of the offer.

“It’s a tender/consent combo whereby anyone tendering automatically consents to amendments to the indenture that will have a material impact on the non-tendering note-holders regarding (for example) their secured ranking status,” he said.

Calls to Athabasca seeking a comment weren’t returned.

So what’s led to all this excitement?

It started in mid-December with the purchase of certain oil assets from Statoil Canada.

On Feb. 9 Athabasca announced a cash tender offer “for any and all” of its outstanding senior secured second lien notes due 2017. (The notes were issued via a private placement in Nov. 2012.) The company is offering $974.25 (per $1,000 note) to those who tender and a $30 (per $1000 note) early tender payment to those who tender by Thursday.

By tendering early, the most a holder could receive is $1004.75 per $1000 note. For those who miss the early deadline, the maximum payout is $974.25 per $1000 note. The offer is set to end on March 9.

But there’s no guarantee holders will receive either amount: It all depends on, among other things, whether Athabasca can raise US$450 million via a five-year debt at 9.875 per cent financing.

On Feb. 9 Athabasca also announced it was soliciting consents “to authorize the elimination of most of the restrictive covenants and certain of the events of default contained in the indenture governing.”

The rub, as noted by Athabasca, is that holders aren’t allowed to tender “without delivering their consents to the proposed amendments and may not deliver consents to the proposed amendments without tendering their notes.” In other words, holders have to tick both boxes.

One negative about that proposal is that Athabasca seems to be setting up a situation where there are two classes of debt holders. “They are trying to railroad their note holders into accepting an arrangement by essentially paying off exiting note holders to consent to amendments affecting the remaining note holders,” said the frustrated noteholder.

For the consent to be completed, 50 per cent of the notes have to be tendered.

Under the terms of the 2012 issue, Athabasca is allowed to redeem, after November 2014, provided that it pays a premium to the holders. There is no premium for redeeming in the final year of the notes.

Accordingly Athabasca will complete the purchase of the notes irrespective of the amount tendered. “The covenant portion is (meant) to further incentivize holders to come out,” said a source familiar with the process. “If they get stuck in there they have no rights.”

One investor said a better solution, assuming Athabasca’s intentions “were in good faith and it intended to eliminate the notes,” would have been to offer $1,000 per note across the board plus the $30 bonus for early acceptance. “Otherwise, it could simply call the notes at par, under the terms of the existing indenture.”