RE:breach of covenants soon?The breach of convenants is a given considering the price of oil AND the Stella delay. Management needs to secure a firm commitment from the RBL lenders to reassure the market. Currently worst case scenario seems to be anticipated. See below extract on BORROWINGS from the company 2014Q3 financials (convenants are highlighted in yellow):
Ithaca Energy Inc.03 2014 Financial Statements
In October 2013, the Corporation increased its existing RBL (Reserved Based Lending) Facility to $610 million with enhanced terms including reduced margin costs (LIBOR plus 2.75%-3%) and greater flexibility over future unallocated capital with a loan term until June 2017.
The Corporation also established a new five year $100 million corporate facility in October 2013 with a term of up to 5 years which attracts interest at LIBOR plus 4.15%.
On 1 July 2013, the Corporation signed a NOK 450 million Norwegian Tax Rebate Facility (the "Norwegian Facility"). Under the Norwegian tax regime, 78% of exploration, appraisal and supporting expenditure resulting from operations on the Norwegian Continental Shelf is refunded by the Government in the December of the year following the year the costs were incurred. This is a conventional tax refund facility on industry standard terms. On 30 September 2014, thsi facility was increased to NOK 600 million
(-$100 million) and tenure to 31 December 2016.Any drawings under this facility will be fully offset by a receivable tax refund from the Norwegian government within a maximum of 24 months.
On 3 July 2014, the Company completed an offering of $300 million 8.125% senior unsecured notes due July 2019, with interest payable semi-annually. The net proceeds of the notes were used to partially repay (without cancelling) the Company's senior secured RBL Facility, with a portion of it subsequently redrawn to finance the acquisition of the Summit assets on 31 July 2014.
The Corporation is subject to financial and operating covenants related to the facilities. Failure to meet the terms of one or more of these covenants may constitute an event of default as defined In the facility agreements, potentially resulting in accelerated repayment of the debt obligations.
The key covenants in the RBL are:
- A corporate cashflow projection showing total sources of funds must exceed total forecast uses of funds for the following 12 months.
- The ratio of the net present value of cashflows secured under the RBL for the economic life of the fields to the amount drawn under the facility must not fall below 1.15:1
- The ratio of the net present value of cashflows secured under the RBL for the life of the debt facility to the amount drawn under the facility must not fall below 1.05:1.
The principle covenants under the undrawn Corporate Facility are:
-The ratio of total debt to earnings before interest, tax, DD&A, impairment, exceptional or extraordinary expenditure and E&E
writeoffs ("EBITDAX"), calculated quarterly on a trailing 12-month basis as of the last day of each quarter, must not exceed 3.0:1 or
3.5:1 if any one of the two previously tested ratios have been at or below 3.0:1
-The ratio of EBITDAX to total debt costs, calculated quarterly on a trailing 12-month basis as of the last day of each quarter, must not be less than 4.0:1
Note no funds have or are forecast to be drawn under the Corporate facility.
The key covenant in the Norwegian Tax Rebate Facility is Norwegian subsidiaries must have available funds to execute planned activities for the year to December in each calendar year.
There are no financial maintenance covenants tests under the senior notes.
Security provided against the loan
The RBL and Corporate facilities are secured by the assets of the guarantor member of the Ithaca Group, such security including share pledges, floating charges and/or debentures.
The Norwegian Facility is secured by the assets of Ithaca Petroleum Norge AS, such security including a share pledge, assignment of insurance and tax refund proceeds and pledges of participation interests in licences.
The Senior notes are unsecured senior debt of Ithaca Energy Inc, guaranteed by certain members of the Ithaca Group and subordinated to existing and future secured obligations.
As at 30 September 2014, $476 million (31 December 2013: $410 million) was drawn down under the RBL Facility and approximately $70 million (31 December 2013: $34million) was drawn under the Norwegian Tax Rebate Facility. $8 million (31
December 2013: $12 million) of loan fees relating to the RBL and $5.4 million relating to the Senior Notes have been capitalised and remain to be amortised.