Sterling Resources gets enough votes at meeting to amend 9% bonds

By Susanna Moon

Chicago, May 8 – Sterling Resources (UK) plc said bondholders voted by 99.7% to amend its 9% senior secured bonds due 2019.

The meeting was held on Friday, with 99.2% of the total outstanding bonds represented, according to a press release by Sterling Resources Ltd. The meeting was announced April 23.

Pareto Securities AS acted as financial adviser.

The bonds were issued in 2013.

The bond amendments will provide the group with needed liquidity for the next six months “while it pursues a long-term solution to its financing needs by way of a strategic review,” the press release said.

The long-term solution would take the form of a sale or merger of the company, a refinancing of the bond, a sale of 10% to 15% of Breagh, or some combination of these, the company said.

Meeting background

As previously reported, on Dec. 12, the company amended the bond agreement, originally dated May 2, 2013, to suspend payments to a debt service retention account until April 28.

The issuer had forecast a lack of liquidity to make the interest and installment payments due on April 30.

As a result, the company sought ways to strengthen its balance sheet and improve its liquidity, including selling all of its Romanian assets to Carlyle International Energy Partners for $42.5 million.

However, the asset sale would not have been completed by the April 30 payment date, and the company expected a cash deficit of about $32.7 million.

The company therefore proposed further changes to its bonds including the following:

• Deferral of the installment due April 30 to the earlier of Oct. 30, 2015 and as soon as possible once the company completes its sale of Romanian assets;

• Temporary release from monthly payments to the debt service retention account and permanent one-month deferral in monthly transfers to the debt service retention account;

• An increase of installment premiums to 107.5 from 105 beginning on and after April 30, provided that the final installment due at maturity remains at par;

• An increase in the interest rate to 14% from 9%, effective Nov. 1, 2015;

• An increase in the prepayment premium, with the outstanding bonds redeemable at 107.5 for the remaining term upon a call option exercise or a mandatory prepayment event; and

• Temporary amendment to the liquidity covenant. From April 30 to Oct. 30, 2015, the minimum liquidity requirement will be $5 million. The minimum requirement will revert to $10 million from Oct. 31, 2015 onward.

More details

In addition, the company sought a waiver. The time needed to implement the proposal requires that the company obtain a waiver relating to some terms of the bond agreement for a specified period.

To approve the proposal, bondholders representing more than two-thirds of the bonds represented at the meeting needed to vote in favor of the resolution. In order to have a quorum, at least half of the voting bonds needed to be represented at the meeting.

The company will pay an amendment fee totaling $3 million on a pro rata basis to bondholders.

The company will pay an additional fee if the sale of its Romanian assets is delayed.

The issuer previously said it believed that the proposal ensures that it retains sufficient liquidity to continue operations until Oct. 30, 2015.

The notes are guaranteed by parent company Sterling Resources Ltd., a Calgary, Alta.-based oil and gas company with assets in the United Kingdom, Romania, France and the Netherlands.

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