CALGARY, Oct. 22, 2015 /CNW/ - Sterling Resources Ltd. (TSX-V: SLG) ("Sterling" or the "Company" and together with its subsidiaries the "Group") announces that its United Kingdom ("UK") subsidiary Sterling Resources (UK) plc ("Sterling UK") has today summoned a meeting of holders ("Bondholders") of its US$225 million senior secured bond with current outstanding amount of US$180 million (ticker on Nordic ABM exchange: STRE01 PRO) (the "Bond"), to be held on November 6, 2015 (the "Bondholder Meeting"). The purpose of the Bondholder Meeting is to allow Bondholders to vote on certain amendments (the "Bond Amendments") to the Amended & Restated Bond Agreement dated May 22, 2015 (the "Bond Agreement"), with the intention of providing the Group with necessary liquidity up to the end of February 2016 while it completes one or more transactions including potentially a refinancing, a corporate sale or merger and/or an asset sale (each a "Transaction") which achieves a full prepayment in cash of the outstanding Bond together with the applicable 7.5 percent prepayment premium and accrued interest and additional repayment fees (as described below) by February 29, 2016 (the "Targeted Bond Redemption").
The Bond Amendments reflect the culmination of a consultative process with the Bond Trustee and certain Bondholders, as a result of which Sterling has been advised by Bondholders representing a majority of Bonds that they support the Bond Amendments.
All dollar amounts in this news release are US dollars.
Sterling has previously agreed two sets of amendments to the terms of the Bond in December 2014 and May 2015, both intended to provide additional liquidity while the Group pursued several initiatives to sell assets, pursue a potential corporate sale or merger (each an "M&A Deal"), or to refinance the Group. On August 26, 2015 the Company announced the sale of the Group's Romanian assets (the "Romanian Assets Disposal"), for a headline consideration of $42.5 million ($32.5 million net after a cash payment of $10 million to Gemini Oil & Gas Fund, II LP). $24.8 million of the net cash received was used to pay the outstanding instalment payment (with amortization premium) from April 30, 2015 and accrued interest.
Despite the net proceeds from the sale of the Group's Romanian assets, Sterling expects to have a cash deficit of approximately $20 million after (i) completion of the Romanian Asset Disposal during August 2015, (ii) paying an amortization instalment at 107.50 percent of par value and semi-annual interest payment on October 30, 2015 of $32.3 million, and (iii) providing for $10 million of minimum liquidity in Sterling UK from October 31, 2015.
To assist in its efforts to refinance and to pursue an M&A Deal, Sterling appointed MHW Associates Limited and Jefferies international as financial advisors to assist in identifying, evaluating and pursuing potential alternatives. However, both of these processes were adversely impacted by the lack of resolution of the ownership of the assets owned by LetterOne Group following an earlier acquisition which had not been approved by the UK government (the assets included a 70 percent operated interest in Breagh); the background to this ownership uncertainty is described in Sterling's Second Quarter Interim Report under "Development Activity – Breagh development". As announced by Sterling on October 13, 2015, Ineos Group AG's announcement on October 11, 2015 that it was purchasing the DEA UK Assets should end this uncertainty. Accordingly, the Group is continuing to move forward with a refinancing and will seek better offers from existing corporate and asset bidders, as well as new offers from other potential bidders. To ensure the Group has time to complete a Transaction, which will be to the benefit of Sterling, its shareholders and the Bondholders, Sterling has negotiated this further set of Bond Amendments.
The Proposed Bond Amendments
The Bondholder letter issued today to summon the Bondholder meeting (the "Summons Letter") contains full details of the proposed Bond Amendments. A copy is being filed on SEDAR and on the Company's website. Some of the key benefits to Sterling and Bondholders respectively are summarised below, but the Summons Letter is the definitive document in the event of any inconsistency.
The principal benefits to Sterling of the proposed Bond Amendments are as follows:
- A deferral of the amortization instalment (including amortization premium) due on October 30, 2015 (the "October 2015 Instalment"), until February 29, 2016 at the latest but earlier if triggered by the failure to achieve certain Milestones (as defined below) or in the event of certain other events of default.
- The requirement to make monthly transfers of funds into the Debt Service Retention Account will be permanently deleted (this represents a continuation of the current suspension which has been in place since October 30, 2014).
- Revisions to the minimum UK liquidity requirement as follows:
(i) from October 30, 2015 to and including November 29, 2015, $5 million
(ii) from November 30, 2015 to and including February 28, 2016, $7.5 million
(iii) from and including February 29, 2016 and onwards, $10 million.
In return, the Bondholders benefit principally from the following:
- A series of milestones on different dates ("Milestones") whereby (i) Sterling UK shall report to the Bond Trustee and its advisers, and (subject to a confidentiality agreement) Bondholders, on a shortlist of Transactions; (ii) approval of the Transaction shortlist shall be obtained from the Bond Trustee; (iii) Sterling UK shall report further on the specific Transaction(s) which it intends to pursue to achieve the Targeted Bond Redemption; and (iv) regular repeated certification shall be made relating to the expected completion of the Targeted Bond Redemption via the specific Transaction(s).
- If at any time the Bond Trustee considers, acting reasonably, that completion of at least one Transaction resulting in the Targeted Bond Redemption does not have a reasonable prospect of being achieved, it may serve notice to that effect upon Sterling UK which could trigger early payment of the October 2015 Instalment.
- Certain additional information covenants (to which further events of default are linked).
- Appointment of an Independent Director to the board of directors of Sterling and Sterling UK, as nominated by the Bond Trustee (in the case of Sterling, subject inter alia to TSXV approval).
- An initial amendment fee of $1 million, payable shortly after approval of the Bond Amendments in the Bondholder Meeting.
- Potential additional amendment fees, payable cumulatively, triggered by the earliest to occur of several events if the Targeted Bond Redemption has not occurred by certain dates:
(i) By December 31, 2015, $1 million;
(ii) By January 31, 2016, $2 million; and
(iii) By February 29, 2016, $3 million.
- An "Exit Fee" payable after Bond Redemption, being effectively 20 percent of the incremental final (post Bond Redemption) equity value above a 100 percent increase on the initial equity value (measured prior to approval of the Bond Amendments), to be calculated in a defined manner and payable in cash and/or common shares in Sterling Resources Ltd., subject to certain adjustments and conditions.
- Additional security by assignment of receivables held by Sterling against its subsidiary in the Netherlands.
- A number of further potential events of default linked to breaches of Milestones, failure to satisfy new information covenants, failure to pay fees and in certain other situations.
Together, the Bond Amendments are anticipated to provide necessary incremental liquidity which the Company believes will be sufficient to ensure it can complete a Transaction and achieve the Targeted Bond Redemption by no later than February 29, 2016.
Assuming approval by a two-thirds majority of Bondholders (by value) at the Bondholder Meeting, the Bond Amendments will become effective upon execution of an amended and restated Bond Agreement reflecting the Bond Amendments, promptly following the Bondholder Meeting and no later than November 30, 2015.
Sterling is a Canadian-listed international oil and gas company headquartered in Calgary, Alberta with assets in the United Kingdom, Romania, France and the Netherlands. The common shares are listed and posted for trading on the TSX Venture Exchange (TSX-V) under the symbol "SLG".
Neither the TSX-V nor its Regulation Services Provider (as that term is defined in the policies of the TSX-V) accepts responsibility for the adequacy or accuracy of this release.
Filer Profile No. 00002072
All statements included in this news release that address activities, events or developments that Sterling expects, believes or anticipates will or may occur in the future are forward-looking statements. In particular, this news release contains forward-looking statements with respect to Sterling's intention to enhance its liquidity and the manner in which it proposes to do so; the nature of and anticipated benefits to Sterling and the Bondholders of the proposed Bond Amendments; the duration for which Sterling will be properly funded if the Bond Amendments are adopted; the support from Bondholders representing a majority of Bonds to the Bond Amendments; the anticipated benefits of a corporate transaction; the anticipated timing of completion of a refinancing initiative; intended capital expenditure reductions or postponements; anticipated reductions in general and administrative costs and the expectation that Sterling will achieve a permanent solution to its financial challenges and the manner in which that will be accomplished.
These forward-looking statements involve numerous assumptions made by Sterling based on its experience, perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. In addition, these statements involve substantial known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other-forward looking statements will prove inaccurate, certain of which are beyond Sterling's control, including: the impact of general economic conditions in the areas in which Sterling operates, civil unrest, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in commodity prices, foreign exchange or interest rates, stock market volatility and obtaining required approvals of regulatory authorities. In addition there are risks and uncertainties associated with oil and gas operations. Readers should also carefully consider the matters discussed under the heading "Risk Factors" in the Company's Annual Information Form.
Undue reliance should not be placed on these forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. Sterling's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements. These statements speak only as of the date of the news release. Sterling does not intend and does not assume any obligation to update these forward-looking statements except as required by law.
Financial outlook information contained in this news release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this news release should not be used for purposes other than for which it is disclosed herein.
SOURCE Sterling Resources Ltd.
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