DBRS Comments on Change in Control Offer for Cona Resources Ltd. Senior Unsecured Notes

On July 31, 2017, Cona Resources Ltd. (Cona or the Company) announced the final results and settlement for its offer to purchase for cash any and all of its USD 269.7 million outstanding Senior Unsecured Notes (the Notes) due 2022. The offer was made pursuant to the change of control provision governing the Notes that was triggered with the recent acquisition of a controlling equity stake in Cona by Waterous Energy Fund.

The offer expired on July 26, 2017, with USD 262.2 million in aggregate principal amount or 97.2% of the Notes tendered. All the tendered Notes were accepted by the Company and payment was made on July 31, 2017. The balance of the Notes that remain outstanding are USD 7.5 million. If 90% or more of the Notes are tendered to the change of control offer, Cona has the right to redeem the outstanding Notes. The Company has notified the holders of the remaining Notes that on August 31, 2017, it will redeem all such Notes at a purchase price equal to 101% of the principal amount of such Notes (same redemption price as the change of control offer) plus accrued and unpaid interest up to August 31, 2017.

The purchase of the Notes plus accrued and unpaid interest totalled USD 274.4 million (CAD 345.2 million equivalent). The payment was financed through a draw of $186.8 million on the Company’s existing credit facility, a $160.0 million second lien term loan entered into for the purposes of financing the offer and cash on hand. The term loan is to mature on July 28, 2020, and is repayable at par during the first year, 102.5% of par during the second year and 105% of par during the third year. The term loan bears interest at the Canadian Dollar Offered Rate (CDOR) plus 7.5% (today approximately 8.7%) during the first year and CDOR plus 10% thereafter.

When the remaining Notes are repaid DBRS Limited (DBRS) will discontinue rating the Notes that are currently rated at B (low) with a Stable trend and have a Recovery Rating of RR4. DBRS notes that the change in the quantum of debt and the key credit metrics as a result of the above noted transactions does not change materially. Furthermore, in DBRS’s opinion, although the liquidity profile is modestly weaker it is not enough to have an adverse impact on the Issuer Rating. DBRS’s Issuer Rating for Cona is B (low) with a Stable trend.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Oil and Gas Industry (September 2016) and DBRS Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers (February 2017), which can be found on dbrs.com under Methodologies.