Debt deal gives Penn West relief
Agreement means $650M in senior notes will be repaid in two years
Highly leveraged Penn West Petroleum Ltd. got some relief from its creditors by agreeing that proceeds from any asset sales for the next two years would be used to repay its bonds, the company announced Monday.
“This marks a key milestone in our ongoing plan to reduce debt and improve our capital structure,” Penn West’s chief financial officer and senior vice-president David Dyck said in a release. “Over the past 18 months, Penn West has repaid its debt by approximately $1 billion using the net proceeds from asset dispositions.”
Passed by a majority vote of Penn West’s debt holders, Monday’s deal amends agreements with all of the company’s creditors, but ensures holders of $650 million worth of senior notes will be repaid with the proceeds from any asset sales in the next two years.
The company also announced it had sold another $97 million worth of assets, which will be used to repay those notes.
That disposition means the company has sold roughly $1.4 billion worth of assets since Dave Roberts became Penn West president and CEO about a year ago in June. He has said the Calgary-based light oil producer is willing to sell up to a total of $2 billion in assets.
“Ours is not a liquidity problem: It’s a covenant problem and we’re working through that,” Roberts said after the company’s annual meeting on May 13.
At the end of the first quarter, Penn West’s long-term debts totalled $2.2 billion.
AltaCorp Capital analyst Jeremy McCrea said in a research note that the debt deal was a positive sign for Penn West, which has seen its share price dive in the last the year.
“The company’s over-leveraged position has clearly weighed on its share price over the year, however with debt waivers signed, continued asset dispositions, and a strong underlying hard asset ... we’ve likely seen the bottom for the share price,” McCrea said.
Penn West shares climbed nine cents or 3.5 per cent to close at $2.62, still a long way from the stock’s 52-week high of $11 per share.
Penn West is one of a number of Canadian oil and gas companies, including Lightstream Resources Ltd. and Connacher Oil and Gas Ltd., to restructure agreements with lenders following the swoon in oil prices. The West Texas Intermediate price for oil closed at $59.72 US on Friday, 45 per cent of the benchmark’s June 2014 price. U.S. markets were closed Monday.
Banks and other lenders have shown an increased willingness to renegotiate debt agreements with energy companies this year, Grant Thornton LLP senior manager in corporate restructuring Charla Smith said, because “they don’t want to see their whole energy portfolio wiped out and the prices right now aren’t good for anybody.”
“The situations that we’re seeing where the banks are actually taking action are ones where it was a bit shaky before the (oil) prices started to go down and it’s just exacerbated the situation,” Smith said in an interview.