Pen­growth En­ergy pre­pays 2018 term notes

Pen­growth En­ergy Corp. has pre­paid all of its out­stand­ing term notes due 2018. The com­pany has also fi­nal­ized amendents with its lenders for its re­main­ing term notes.

Stockwatch Daily - - FRONT PAGE - Mr. Derek Evans re­ports

PEN­GROWTH EN­ERGY Corp. has pre­paid all of its out­stand­ing term notes due in 2018 and has fi­nal­ized the terms of amend­ing agree­ments with its lenders un­der its syn­di­cated bank fa­cil­ity and the hold­ers of its re­main­ing term notes. Th­ese agree­ments amend the ex­ist­ing fi­nan­cial covenants ef­fec­tive for the quar­ter ended Sept. 30, 2017, through to and in­clud­ing the quar­ter end­ing Sept. 30, 2019. The terms of the amend­ing agree­ments are ex­pected to pro­vide Pen­growth with the fi­nan­cial flex­i­bil­ity and run­way to re­struc­ture its re­main­ing debt with covenant light debt and to de­velop a fi­nanc­ing strat­egy for the con­tin­u­ing de­vel­op­ment of its Lind­bergh as­set.

Debt re­duc­tions

The com­pany has been ac­tive in the dis­po­si­tion mar­ket in 2017, clos­ing on ap­prox­i­mately $825-mil­lion of dis­po­si­tion pro­ceeds year to date with an­other $150-mil­lion dis­po­si­tion (Swan Hills) sched­uled to close in the fourth quar­ter. This suc­cess has al­lowed the com­pany to ma­te­ri­ally re­duce its out­stand­ing debt while only re­duc­ing its re­serve base by ap­prox­i­mately 23 per cent. The com­pany has de­ployed its ex­ist­ing cash on hand to pre­pay all the term notes oth­er­wise sched­uled to ma­ture on Aug. 28, 2018.

In ad­di­tion to the pre­pay­ment of the 2018 term notes, the com­pany paid ap­prox­i­mately $78-mil­lion of prin­ci­pal on its re­main­ing out­stand­ing term notes. With the com­ple­tion of th­ese pay­ments, the com­pany now has ap­prox­i­mately $535-mil­lion of term notes out­stand­ing, hav­ing re­paid ap­prox­i­mately $1.1-bil­lion of term notes and con­vert­ible deben­tures since Dec. 31, 2016. The re­paid debt car­ried an an­nual in­ter­est load of ap­prox­i­mately $65-mil­lion. Pen­growth’s next term note ma­tu­rity is not un­til Oct. 18, 2019.

Amended fi­nan­cial covenants

The com­pany has fi­nal­ized the amend­ment agree­ments with the lenders un­der its syn­di­cated bank fa­cil­ity and the hold­ers of its term notes. The syn­di­cated bank fa­cil­ity and the term notes were pre­vi­ously bound by fi­nan­cial covenants that in­cluded a se­nior-debt-to-EBIT DA

(earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­za­tion) (12 months trail­ing) ra­tio of less than 3.5:1; a se­nior-debt-to-cap­i­tal­iza­tion ra­tio of less than 55 per cent; and an EBITDA-to-in­ter­est-ex­pense ra­tio of greater than 4.0 times. The bank lend­ing syn­di­cate and hold­ers of the term notes have agreed, for the waiver pe­riod, to:

•Elim­i­nate the se­nior-debt-to-EBITDA ra­tio covenant;

• Elim­i­nate the debt-to-book-cap­i­tal­iza­tion ra­tio covenant;

• Re­duce the trail­ing 12-month ad­justed-EBITDA-to-ad­justed-in­ter­est-ex­pense ra­tio covenant; the ad­justed-EBITDA-to-ad­justed-in­ter­est ra­tio will vary from quar­ter to quar­ter.

In ex­change, lenders un­der the syn­di­cated bank fa­cil­ity and the hold­ers of the term notes were granted se­cu­rity over Pen­growth’s as­sets, a 2.0-per­cent­age-point in­crease in in­ter­est rates on re­main­ing out­stand­ing term notes (which in­creases to 3.0 per­cent­age points on Jan. 1, 2020), as well as a one-time 0.5-per­cent­age-point amend­ment fee payable on all out­stand­ing term notes ma­tur­ing af­ter 2018. In ad­di­tion, the to­tal credit limit un­der the credit fa­cil­ity has been re­duced to $400-mil­lion and will be re­duced to $330-mil­lion fol­low­ing the com­ple­tion of the pre­vi­ously an­nounced dis­po­si­tion of the com­pany’s re­main­ing Swan Hills as­sets. Cur­rently, ap­prox­i­mately $175-mil­lion is drawn on the fa­cil­ity.

Derek Evans, pres­i­dent and chief ex­ec­u­tive of­fi­cer, said: “We have been com­mit­ted to re­duc­ing our debt and strength­en­ing our fi­nan­cial po­si­tion in or­der to build a stronger foun­da­tion for grow­ing the com­pany go­ing for­ward. The agree­ments with our lenders and note­hold­ers mark a key mile­stone in our plan and pro­vide us with ad­di­tional fi­nan­cial run­way. We re­main fo­cused on re­struc­tur­ing and strength­en­ing the com­pany’s fi­nan­cial po­si­tion, in­clud­ing find­ing new sources of cap­i­tal to re­place our ex­ist­ing term notes with less covenant re­stric­tive debt. With suc­cess, this fi­nan­cial plan is ex­pected to al­low us to ex­e­cute on our de­vel­op­ment strat­egy, in­clud­ing the de­vel­op­ment of our Lind­bergh phase 2, which re­mains on hold await­ing stronger com­mod­ity prices. While we are happy to see the re­cent strength­en­ing in crude oil prices, a de­ci­sion to pro­ceed with phase 2 is de­pen­dent on a higher long-term crude oil price en­vi­ron­ment for di­luted bi­tu­men sales. Once com­plete, Lind­bergh is ex­pected to ul­ti­mately de­liver long-term growth in pro­duc­tion and cash flow.”

We seek Safe Har­bor.

Karen Bax­ter con­densed this news re­lease (karenb@stock­watch.com).

Derek Wat­son Evans, Wayne Kim Foo, Kelvin B John­ston, James Dou­glas McFar­land, Al­bert Ter­ence Poole, Jamie Calvin Sokalsky, Don­ald Michael God­frey Stewart

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