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question about Premier Oil Bonds?

Gilts, bonds, and interest-bearing shares
FredBloggs
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question about Premier Oil Bonds?

#62194

Postby FredBloggs » June 23rd, 2017, 11:23 am

In the Questor column today I saw this (below) suggesting a 12% yield to maturity in May 2021. Is that right, a total return of around 48% in just less than four years? Seems too good to be true.
In brief, Premier’s retail bonds convert into new forms of security with slightly altered terms (the maturity date moves six months later, to May 2021, and the coupon rises from 5pc to 6.5pc). Whatever you do, your holding persists under the new terms and continues to trade at today’s price of just under 81p, a drop on its recent high of 92p only last month. With its improved coupon the yield to maturity – which takes into account the capital gain from being repaid £1 for every bond at maturity – rises to about 12pc.

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Re: question about Premier Oil Bonds?

#62218

Postby spasmodicus » June 23rd, 2017, 12:31 pm

I have held some of these bonds (5% 2020 PMO1 ticker) for a year or so in my HL SIPP and was enjoying the potential yield from buying them at about 67p.

from HL's communication
If the [existing] financial covenant deferrals were to lapse and the Issuer was unable to secure further deferrals of a similar nature, there would be an event of default under each of those facilities, which could in turn trigger cross-defaults into the other financing arrangements of the Group
In a nutshell, this would potentially trigger insovency proceedings

HL went on to say
a summary of the key terms is outlined below:

The number of Units of Premier Oil Finance Ltd 5% 2020 Bond will not be changed as a result of the Scheme.
The Refinancing will allow the Company to reset the financial covenants linked to its debt and give it greater financial flexibility.
The Maturity date of the Bond will be extended from 11 December 2020 to 31 May 2021.
The interest rate on the Bond will be increased from 5% to 6.5%.
You will receive Warrants in Premier Oil. These will be either Equity Warrants (convertible into Ordinary Shares) or Synthetic Warrants (can only be redeemed for cash) depending on any election you make.
You will receive an amendment fee of 100bps (basis point) (1%) per nominal held.


There is a 192 page prospectus and a decision to take equity warrants or synthetic warrants was required by last Monday. I chose the equity warrants option.

further explanation about the warrants
Every Equity Warrant Holder shall have the right to subscribe at any time during the Exercise Period for [Ordinary]… Shares at the Exercise Price on the basis of one Share for every Equity Warrant held, subject to adjustment in accordance with the terms of the Share Warrant Deed Poll.

“Subject to the occurrence of any Equity Adjustment Event, the Equity Warrants shall have an exercise price of 42.75 pence per Share. The Equity Warrants will expire at 9.00 a.m. on 31 May 2022.

“The Synthetic Warrants will confer on each Synthetic Warrant Holder the right to receive a payment in cash from or on behalf of the Issuer of a Proportionate Share of a fee equivalent of up to 15 per cent (reduced in accordance with ratio of Equity Warrants to Synthetic Warrants taken up) of the difference between £218,371,728.58 and the market capitalisation of the Issuer on the earliest of:
the calendar quarter-end date on which the Gross Leverage Ratio of the Group falls below 3:1;
the calendar quarter-end date on which the New Net Leverage Ratio of the Group falls below 2.5:1;
the maturity date of the Senior Secured Debt Facilities; and
the date on which the Senior Secured Debt Facilities are repaid or prepaid and cancelled in full.

“The Equity Warrants and Synthetic Warrants will not be admitted to trading on any market or exchange.

“The Synthetic Warrants will expire upon payment of the Synthetic Equity Growth Fee.” (Source: Official Prospectus, May 2017)


It seems that such warrants cannot be held within a SIPP, so if I want to hold the warrants I would have to create a new non-SIPP type account with HL to do so. However it seems that I could exercise the equity warrants within 30 days for shares in PMO. The exercise price of 42.75p is below the current PMO share price (47p as I write) and I would be prepared to top up my current holding of PMO at that price. PMO share price has been hit recently due to decrease in OP, but I think that the longer term future for PMO is just about OK at the moment. My PMO holding is part of an oily recovery strategy (gamble?), so we shall see.

S

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Re: question about Premier Oil Bonds?

#62219

Postby FredBloggs » June 23rd, 2017, 12:33 pm

Thanks, so the hold to redemption yield really is 12% per year till May 2021?

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Re: question about Premier Oil Bonds?

#62231

Postby spasmodicus » June 23rd, 2017, 12:54 pm

yes, at 83p the running yield is 7.8% and YTM is about 12%, according to Fixed Income Investor calculator at
https://www.fixedincomeinvestor.co.uk/x/yieldcalc.html

Having bought at 67p, my running yield is 9.7%, but either way these bonds are quite risky.
(but I still sleep better than I would in a high-rise flat)

S

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Re: question about Premier Oil Bonds?

#62233

Postby FredBloggs » June 23rd, 2017, 12:55 pm

spasmodicus wrote:yes, at 83p the running yield is 7.8% and YTM is about 12%, according to Fixed Income Investor calculator at
https://www.fixedincomeinvestor.co.uk/x/yieldcalc.html

Having bought at 67p, my running yield is 9.7%, but either way these bonds are quite risky.
(but I still sleep better than I would in a high-rise flat)

S

Thank you again. Hmmm, they're going to make it through the next 4 years....... maybe........... !!!!

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Re: question about Premier Oil Bonds?

#62359

Postby hiriskpaul » June 23rd, 2017, 8:27 pm

spasmodicus wrote:I have held some of these bonds (5% 2020 PMO1 ticker) for a year or so in my HL SIPP and was enjoying the potential yield from buying them at about 67p.

from HL's communication
If the [existing] financial covenant deferrals were to lapse and the Issuer was unable to secure further deferrals of a similar nature, there would be an event of default under each of those facilities, which could in turn trigger cross-defaults into the other financing arrangements of the Group
In a nutshell, this would potentially trigger insovency proceedings

HL went on to say
a summary of the key terms is outlined below:

The number of Units of Premier Oil Finance Ltd 5% 2020 Bond will not be changed as a result of the Scheme.
The Refinancing will allow the Company to reset the financial covenants linked to its debt and give it greater financial flexibility.
The Maturity date of the Bond will be extended from 11 December 2020 to 31 May 2021.
The interest rate on the Bond will be increased from 5% to 6.5%.
You will receive Warrants in Premier Oil. These will be either Equity Warrants (convertible into Ordinary Shares) or Synthetic Warrants (can only be redeemed for cash) depending on any election you make.
You will receive an amendment fee of 100bps (basis point) (1%) per nominal held.


There is a 192 page prospectus and a decision to take equity warrants or synthetic warrants was required by last Monday. I chose the equity warrants option.

further explanation about the warrants
Every Equity Warrant Holder shall have the right to subscribe at any time during the Exercise Period for [Ordinary]… Shares at the Exercise Price on the basis of one Share for every Equity Warrant held, subject to adjustment in accordance with the terms of the Share Warrant Deed Poll.

“Subject to the occurrence of any Equity Adjustment Event, the Equity Warrants shall have an exercise price of 42.75 pence per Share. The Equity Warrants will expire at 9.00 a.m. on 31 May 2022.

“The Synthetic Warrants will confer on each Synthetic Warrant Holder the right to receive a payment in cash from or on behalf of the Issuer of a Proportionate Share of a fee equivalent of up to 15 per cent (reduced in accordance with ratio of Equity Warrants to Synthetic Warrants taken up) of the difference between £218,371,728.58 and the market capitalisation of the Issuer on the earliest of:
the calendar quarter-end date on which the Gross Leverage Ratio of the Group falls below 3:1;
the calendar quarter-end date on which the New Net Leverage Ratio of the Group falls below 2.5:1;
the maturity date of the Senior Secured Debt Facilities; and
the date on which the Senior Secured Debt Facilities are repaid or prepaid and cancelled in full.

“The Equity Warrants and Synthetic Warrants will not be admitted to trading on any market or exchange.

“The Synthetic Warrants will expire upon payment of the Synthetic Equity Growth Fee.” (Source: Official Prospectus, May 2017)


It seems that such warrants cannot be held within a SIPP, so if I want to hold the warrants I would have to create a new non-SIPP type account with HL to do so. However it seems that I could exercise the equity warrants within 30 days for shares in PMO. The exercise price of 42.75p is below the current PMO share price (47p as I write) and I would be prepared to top up my current holding of PMO at that price. PMO share price has been hit recently due to decrease in OP, but I think that the longer term future for PMO is just about OK at the moment. My PMO holding is part of an oily recovery strategy (gamble?), so we shall see.

S


You can definitely hold the equity warrants in your HL SIPP. I have my PMO1 in a SIPP and have had this confirmed by HL. You cannot hold in an ISA due to ISA rules. Before opting to exercise the warrants, you might want to check whether HL can sell them for you first. The time value will be significant and if you want the shares you should get more for your money by selling the warrants and buying the shares. Providing HL can find a buyer of course!

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Re: question about Premier Oil Bonds?

#62362

Postby hiriskpaul » June 23rd, 2017, 8:38 pm

FredBloggs wrote:
spasmodicus wrote:yes, at 83p the running yield is 7.8% and YTM is about 12%, according to Fixed Income Investor calculator at
https://www.fixedincomeinvestor.co.uk/x/yieldcalc.html

Having bought at 67p, my running yield is 9.7%, but either way these bonds are quite risky.
(but I still sleep better than I would in a high-rise flat)

S

Thank you again. Hmmm, they're going to make it through the next 4 years....... maybe........... !!!!

12% YTM based on the restructured 6.5% coupon and maturity pushed out to 31 May 2021. A 1% amendment fee should be payable soon as well, along with the warrants. Huge punt on no default of course and currently the oil price is heading the wrong way :(

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Re: question about Premier Oil Bonds?

#62426

Postby Wozzitworthit » June 24th, 2017, 8:39 am

I hold all my PMO1 in an ISA with Selftrade

I elected for the synthetic warrants, but a day or so later Selftrade contacted me by email and by phone to advise that these could not be held in an ISA and offered me the chance to change my choice; the implication being that equity warrants could be held in an ISA (although this was not spelt out as such).

For various reasons I did make the change.

Reading posts on this and other boards, it is interesting how various brokers have communicated (or in some cases not at all) the various options that were available.


Woz

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Re: question about Premier Oil Bonds?

#63084

Postby spasmodicus » June 26th, 2017, 10:03 pm

hiriskpaul wrote:
You can definitely hold the equity warrants in your HL SIPP. I have my PMO1 in a SIPP and have had this confirmed by HL. You cannot hold in an ISA due to ISA rules. Before opting to exercise the warrants, you might want to check whether HL can sell them for you first. The time value will be significant and if you want the shares you should get more for your money by selling the warrants and buying the shares. Providing HL can find a buyer of course!


thanks hiriskpaul, I'll consider that when the time comes.
Yeah, this stuff is a bit toxic and it all comes down to whether Premier can keep sweet talking their creditors until the oil price (perhaps) recovers a bit and they can start paying down the debt. Premier is getting on for "too big to fail" in size and if it wasn't for the debt burden would be quite a nice little earner. If they default it would be nasty, but there may be some residual value left.

S

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Re: question about Premier Oil Bonds?

#66933

Postby Shinyuk » July 13th, 2017, 10:37 am

I bought about 30k worth. With the new oil reserves in the Gulf of Mexico this now looks like a sound investment I think. Anyone agree/disagree?

hiriskpaul
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Re: question about Premier Oil Bonds?

#67026

Postby hiriskpaul » July 13th, 2017, 2:05 pm

Shinyuk wrote:I bought about 30k worth. With the new oil reserves in the Gulf of Mexico this now looks like a sound investment I think. Anyone agree/disagree?


Not sure I would want to call it sound just yet! Still highly speculative as far as I am concerned. As to the discovery, clearly better than no discovery, but as to how good I am far from qualified to say. I would be very interested to hear the views of those who do know about this stuff though.

Today's RNS does seem positive and I am pleased to hear the refinancing is still on track. Just a shame about the price of oil.

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Re: question about Premier Oil Bonds?

#68122

Postby spasmodicus » July 18th, 2017, 1:22 pm

hiriskpaul wrote:
Shinyuk wrote:I bought about 30k worth. With the new oil reserves in the Gulf of Mexico this now looks like a sound investment I think. Anyone agree/disagree?


Not sure I would want to call it sound just yet! Still highly speculative as far as I am concerned. As to the discovery, clearly better than no discovery, but as to how good I am far from qualified to say. I would be very interested to hear the views of those who do know about this stuff though.

Today's RNS does seem positive and I am pleased to hear the refinancing is still on track. Just a shame about the price of oil.


I'm not going to hang out the bunting quite yet. Whilst the uptick in the SP is nice (I have a modest holding of PMO equity as well as the bonds), the effect on Premier's finances will probably be negative in the short term. It will be a year or two before the new Gulf of Mexico discovery comes on stream and it will require considerable expenditure. although presumably Premier only bears 25% of the total, according to its holding in the JV. Let us also hope that they don't encounter political, environmental or geological problems. These days, a Macondo type spill would probably wipe Premier out. There are those in Pemex who still wield considerable power and are probably keen to see foreign investments in "their" oil industry fail, despite Pemex's shocking record of environmental destruction both on and offshore. (see Ixtoc-1 blowout, circa 1979)

fingers crossed,

S

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Re: question about Premier Oil Bonds?

#70297

Postby hiriskpaul » July 28th, 2017, 3:48 pm

Refinancing now complete: http://www.londonstockexchange.com/exch ... 11763.html

I have started a new thread on the O&G board which is probably a better place for future discussion:

viewtopic.php?f=16&t=6537

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Re: question about Premier Oil Bonds?

#71272

Postby hiriskpaul » August 1st, 2017, 3:13 pm

I have just had the equity warrants credited to my account. 33.3 for each 1k nominal of the 5% 2020.

Price has picked up nicely as well, just quoted 92.88 to buy 10k nominal, for a yield to maturity of 8.7%, based on new 6.5% coupon and maturity 31/5/21. Price increase probably due to a combination of the sharp recovery of the price of oi, completion of the restructuring and good news about the Zama-1 exploration well.

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Re: question about Premier Oil Bonds?

#109834

Postby hiriskpaul » January 12th, 2018, 12:17 pm

Promising update from Premier: http://www.londonstockexchange.com/exch ... 92385.html

They are also offering early conversion of convertibles, which would be good news for PMO1 holders if it goes through.

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Re: question about Premier Oil Bonds?

#110217

Postby DampSeaweed » January 13th, 2018, 3:24 pm

Promising update from Premier: http://www.londonstockexchange.com/exch ... 92385.html
They are also offering early conversion of convertibles, which would be good news for PMO1 holders if it goes through.

HIriskpaul,
I don't follow why this conversion be good news for PMO1 holders ?

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Re: question about Premier Oil Bonds?

#110340

Postby hiriskpaul » January 13th, 2018, 11:56 pm

DampSeaweed wrote:Promising update from Premier: http://www.londonstockexchange.com/exch ... 92385.html
They are also offering early conversion of convertibles, which would be good news for PMO1 holders if it goes through.

HIriskpaul,
I don't follow why this conversion be good news for PMO1 holders ?

Debt, which carries mandatory cash payments is replaced with equity, which does not. Premier are over indebted so replacing some of the debt with equity is good for remaining debt holders as it reduces risk of default.


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