CALGARY, April 23, 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$202.5 million (ticker on Nordic ABM exchange: STRE01 PRO) (the "Bond"), to be held on May 8, 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 December 12, 2014 (the "Bond Agreement"), with the intention of providing the Group with necessary liquidity for the next six months while it pursues a long term solution to its financing needs by way of a strategic review. Such a long term solution would take the form of a sale or merger of the company, a refinancing of the bond, or sale of 10-15 percent of Breagh, or some combination of these.
In the preparation stage of summoning the Bondholder Meeting, Sterling discussed the proposed Bond Amendments with many of its largest Bondholders and has received support from certain of those largest Bondholders for these Bond Amendments.
With reference to the news releases issued November 28 and December 12, 2014, certain amendments were made to the Bond Agreement which, inter alia, included a suspension of payments to the Debt Service Retention Account until 30 April 2015, the date on which the next interest payment and instalment are due. At that time, the Company forecasted that it would potentially have insufficient available liquidity to pay the interest and instalment on 30 April 2015.
In order to address this shortfall, the Group has launched several initiatives to strengthen its balance sheet and improve the Group's liquidity position, while minimising the impact on operating cash flow generation and net asset value. This has included the pending sale of the Group's Romanian assets, which was announced on March 26, 2015 (the "Romanian Sale"), a sale or merger of the Company, a potential refinancing of the Bond to provide a long term financing for the Group, pursuit of a sale of 10-15 percent of the Breagh field, reduction and/or postponement of capital expenditures wherever possible and cost reductions across the Group.
The Romanian Sale remains on track to close around the end of June 2015. Regarding the remaining initiatives, the Company is actively pursuing potential corporate transactions which would result in a strengthened balance sheet and added value for the benefit of Bondholders and Shareholders. Refinancing efforts continue and given the significant asset value backing of Breagh, the Company is confident in that a solution will be found in the next six months. Discussions continue regarding a potential sale of a 10-15 percent interest in Breagh. Capital expenditures are being reduced or postponed to the extent possible; as a result of the Romanian sale, material licence well commitments on the Romanian licences will no longer be incurred by Sterling. Efforts to farm-down or defer UK licence well commitments also continue. Finally, net general & administrative costs have been reduced sharply and are expected to fall from approximately $11 million in 2015 to $6.5 million in 2016.
Completion of the Romanian Sale will provide improved liquidity and enable Sterling to negotiate a corporate transaction, a refinancing or a partial Breagh sale from a stronger negotiating position. However, the Romanian Sale will not be completed by 30 April 2015, being the next Payment Date when the next interest and instalment payment is due to Bondholders. At this date, the Issuer expects a cash deficit of approximately $27 million in relation to the requirements to (i) make the payment of approximately $32.7 million (interest and Instalment including premium), (ii) transfer approximately $5.3 million to the Debt Service Retention Account ("DSRA"), and (iii) maintain a minimum UK unrestricted cash balance of $10 million. In order to address this cash shortfall, ensure that the Group has sufficient liquidity to pursue its action plan over the next six months and avoid a breach of the Bond Agreement which could jeopardize this plan, the Issuer is approaching the Bondholders to ask for their consent to make certain amendments to the Bond Agreement as described herein.
The Proposed Bond Amendments
The principal benefits to Sterling of the proposed Bond Amendments are as follows:
- A deferral of the amortization instalment (including amortization premium) due on April 30, 2015, until the earlier of (i) the closing date of the Romanian Sale and (ii) October 30, 2015.
- A further suspension of transfers of funds into the DSRA from April 30, 2015 until, but excluding, October 30, 2015 (this represents a continuation of the current suspension which has been in place since October 30, 2014).
- A reduction in the minimum UK liquidity requirement from $10 million to $5 million from April 30, 2015 to October 30, 2015.
- A permanent one month deferral in monthly transfers to DSRA, from when these would otherwise resume on October 30, 2015.
In return, the Bondholders benefit from the following:
- Net proceeds from the Romanian Sale ((i.e. gross proceeds less the required payment to Gemini, certain fees and tax liabilities) are to be used to pay the amortization instalment deferred from April 30, 2015, with any excess being transferred to the DSRA.
- The redemption price for each of the remaining amortization instalments shall be increased for all remaining instalments (including the April 30, 2015 instalment) from 105% to 107.5% (except for the final instalment which will remain payable at par).
- The redemption price to be paid on any mandatory prepayment amount payable by the Issuer upon the occurrence of asset sales of Breagh or Cladhan, as well as in the event of a prepayment following exercise by Sterling of its call option, shall be increased to 107.5% for the remaining term of the Bonds.
- The interest payable on the par value of the Outstanding Bonds shall, with effect from November 1, 2015, be increased from 9 percent to 14 percent per annum.
- An amendment fee of $3 million payable by May 30, 2015 upon the Bond Amendments and ancillary waivers being approved at the Bondholder Meeting.
- In the event the completion of the Romanian Sale is delayed beyond July 15, 2015, a further amendment fee of $0.75 million and up to three further successive payments of the same amount for each further month's delay up to a maximum of $3 million if completion has not occurred by October 30, 2015.
- Certain extensions to the work scope of the financial adviser shall be made and, at the request of the Bond Trustee, Sterling shall appoint a reputable international investment bank as its financial adviser to assist the Company in the assessment and implementation of strategic options available to it including a sale of all or part of its assets.
Together, the Bond Amendments are anticipated to provide necessary incremental liquidity which the Company believes will be sufficient to ensure it is properly funded through to October 30, 2015.
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 May 22, 2015. A copy of the Bondholder Meeting summons letter is being filed on SEDAR and on the Company's website and a copy of a corporate presentation to Bondholders is being uploaded to the Company's website. These documents provide further information about the background to and full details of the Bond Amendments.
Jake Ulrich, Chief Executive Officer of Sterling, commented, "The Bond Amendments, if approved, are designed to provide the Group with sufficient liquidity for the next six months to complete the initiatives we have underway. We are optimistic that we will achieve a permanent solution to our ongoing financial challenges by selling or merging the Company, or by refinancing the Bond possibly in combination with selling part of Breagh. This is expected to result in Bondholders being repaid and value being unlocked for shareholders, reflecting the very significant value in Breagh. We will continue to work diligently to pursue successful transactions for all stakeholders over the next six months."
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 Toronto Stock Exchange Venture (TSX-V) exchange under the symbol "SLG".
All dollar amounts in this news release are US dollars.
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 of certain Bondholders to the Bond Amendments;] the approval of the Bond Amendments by the Bondholders; the timing and completion of the Romanian Sale and the anticipated benefits thereof on the Group's liquidity position and ability to negotiate a corporate transaction or further asset sale; 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.
SOURCE Sterling Resources Ltd.
For further information: visit www.sterling-resources.com or contact: Jacob Ulrich, Chief Executive Officer, Phone: +1 (403) 237-9256, [email protected]; David Blewden, Chief Financial Officer, Phone: +1 (403) 237-9256, [email protected]; George Kesteven, Manager, Corporate and Investor Relations, Phone: +1 (403) 215-9265, Mobile: +1 (403) 519-3912, [email protected]