Afren agrees recapitalisation deal

Afren, the struggling London-listed oil and gas company focused on Africa, has reached a deal with its creditors to create a recapitalisation plan.

The Participating Noteholders will provide interim funding of US$200 million by way of new private placement notes. The proceeds of such will be used for working capital and general corporate purposes.

Additionally, Afren has said the Ad Hoc Committee, together with lenders representing more than 67% by value of the lenders under the Ebok Facility (the “Consenting Ebok Lenders”) have also agreed in principle to implement a financial and capital restructuring (the “Recapitalisation”) to secure the Group’s future.

To remind, on February 2, 2015, following an agreement with the Ebok Lenders, Afren agreed a deferral of the US$50 million amortisation due on 31 January 2015 until 27 February 2015.

On March 2, 2015, the Ebok Lenders agreed a further deferral of the US$50 million amortisation until 31 March 2015.  On March 3, 2015, following the expiration of the 30 day grace period, Afren announced that it had decided not to make the payment of US$15 million due in respect of interest under the 2016 Notes.  Such decisions were taken in light of the constructive discussions held with the Ad Hoc Committee, the Ebok Lenders and the Group’s operating partners.

The key elements to the Recapitalisation include:
• Refinancing of the PPN through the issuance of US$321 million new high yield notes (the “New Senior Notes”) which will provide an additional US$100 million in net cash proceeds to the Group
• Debt-for-equity swap: 25% of the 2016 Notes, 2019 Notes and 2020 Notes will be converted into equity with the remaining existing Notes being reinstated and extended to 2019 and 2020 at an annual coupon of 9.1%
• Extension of the Ebok Facility until 2019, alongside a re-profiling of the amortisation schedule under such facility
• Issue of new shares to the existing noteholders who subscribe for the PPN and the New Senior Notes
• Up to US$75 million equity offering to all shareholders to provide the opportunity to participate in the Recapitalisation and provide additional liquidity to the Group

Substantial dilution

Afren will issue new ordinary shares representing 50% of the fully diluted share capital immediately following the Debt-for-Equity Swap (for cash at nominal value) to those Noteholders who subscribe for the New Senior Notes. These new shares will substantially dilute both existing shareholders, as well as the Noteholders who receive shares pursuant to the Debt-for-Equity Swap.

However, Afren has said that despite the expected dilution the Company believes that there are significant benefits in shareholders supporting the Recapitalisation, as compared to the alternative outcome if shareholders do not vote in favour at the extraordinary general meeting.

If shareholders do not approve the Recapitalisation, it is expected that the amended economic terms of the New Senior Notes, and the amendment and reinstatement of the Existing Notes, together with the requirement to initiate a sale of the Group’s business, will mean that existing shareholders would be unlikely to see any return on their current investment.

New CEO soon

Commenting today, Toby Hayward, Interim CEO of Afren plc, said:

“2014 was a painful year for Afren and its shareholders. The consequences of the unauthorised payments issue and resulting dismissal of both CEO and COO immediately before the dramatic fall in the oil price coupled with the material reduction in our Kurdistan reserves and resources led to material impairments all of which significantly eroded shareholder value. We have responded by putting in place a number of recovery measures and a business plan that focuses on our valuable cash generating production assets in Nigeria and incorporates broad cost cutting measures.”

“We are confident that Afren will emerge from this difficult period as a financially stable company capable of delivering growth in 2015 and beyond. This has been made possible because of the constructive discussions we have had with the Ad Hoc Committee of our largest bond holders as well as the Group’s senior lenders and operating Partners which has resulted in the funding announced today combined with a longer term focus on recapitalising the business. We anticipate appointing a new CEO shortly who will be able to work with all stakeholders and to lead the business forward.”