Repsol, an integrated global energy company based in Madrid, has announced it will write off part of Talisman Energy’s debt and reduce its financing costs by $65 million a year.
To remind, the Spanish company bought the Canadian oil and gas exploration and production company Talisman for $8.3 billion, plus assumed debt of $4.7 billion.
Repsol, through its subsidiary Talisman Energy, on Wednesday announced the purchase, with a discount of 14.5%, of 1.5 billion dollars of face value in Talisman bonds, corresponding to five issues expiring in 2027, 2035, 2037, 2038, and 2042 with coupon rates of 7.25%, 5.75%, 5.85%, 6.25%, and 5.5%, respectively.
To complement this transaction, in which Repsol used part of its liquidity, the company announced on Wednesday a new issue of 600 million euros in bonds with a term of five years (expiring in December 2020) at a coupon rate of 2.125%.
According to Repsol, canceling Talisman bonds will have a positive effect on Repsol’s results before tax for the 2015 financial year of over 220 million dollars, resulting from the difference between the purchase price and the book value of said bonds. Additionally Repsol says it will benefit from annual savings of 65 million dollars before tax due to the reduced interest payment.
The current net present value generated by this transaction is above 1 billion dollars, as a result of the savings generated by the disappearance of interest payments to be made during the life of the bonds and the value acquired by repurchasing the bonds, Repsol concluded.