Norse Energy in covenant waiver, conversion talks with bondholders

By Caroline Salls

Pittsburgh, Aug. 16 - Norse Energy Corp. ASA is in talks with its bondholders regarding an equity covenant waiver and/or the conversion of some or all of its bond debt into equity, according to a company news release.

Norse said it is the borrower under the loan agreements with Norsk Tillitsmann ASA, and 100% owned subsidiary Norse Energy Holdings Inc. is the guarantor.

According to the release, the loan agreements include covenants under which Norse Energy Holdings is required to maintain a minimum of $36 million of equity and an equity-to-capital-employed ratio of at least 30%.

The company said it has asked the loan trustee and key bondholders to waive these covenants for up to 180 days to give Norse time to continue to seek asset sales.

The key bondholders made a counter proposal to recapitalize the company with a combination of securities that could include new equity, a conversion of bond debt to equity and, potentially, a lesser amount of new debt with a more accommodating covenant package.

Norse said the package of new money and securities has not been decided or agreed, and the talks are in preliminary stages.

The company has hired Pareto Securities to advise it on these matters.

Norse said it requested the waiver because its current business results do not support the equity covenants in the bond agreements, and the company likely will not to be in compliance with the equity covenants as soon as September unless it carries out an asset sale and/or equity capital financing.

Any conversion of bond debt into equity will require the consent of 2/3 of the bondholders represented in a bondholder's meeting, and any conversion of debt to equity or other placement of shares in Norse will require 2/3 majority in a general meeting.

As a result, the company said any decision by the board of directors to seek conversion of debt will be formalized by summons for bondholders' meetings and a call for an extraordinary general meeting.

Drilling suspension

In anticipation that rules allowing the use of high volume hydraulic fracturing to develop natural gas resources in the state of New York will soon be in place, Norse said it has elected to immediately suspend Herkimer drilling to preserve cash for potentially more profitable Marcellus and Utica Shale planning, permitting and development.

The company said its current liquidity position is expected to be adequate to fund operations into the fourth quarter at the present time.

Norse said the draft Supplemental Environmental Impact Statement in New York, issued by the Department of Environmental Conservation on July 8, is expected to improve market sentiment for asset sales. The statement is expected to be finalized in the second half of 2011.

The company expects shale well drilling with high volume hydraulic fracturing to begin in 2012 by mid-year, the release said.

The purpose of the initial waiver proposal was to ensure that Norse can continue to focus on asset sales or capital markets alternatives if needed while New York shale regulations are finalized.

"Norse's management and board of directors strongly believe in the large value potential of its New York State acreage position," chief executive officer Mike Dice said in the release.

Norse Energy is an oil and gas exploration and production company based in Oslo.

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