NEW YORK, Jan 21 (IFR) - Investment firm EIG delivered a dire assessment of the financial state of Pacific Exploration & Production as it renewed its bid late Wednesday to buy its debt and take over the troubled LatAm oil company’s debt.
The move comes as markets and rating agencies brace for a likely default scenario for a company whose fortunes have been battered by the dramatic decline in crude prices.
A series of announcements from Harbour Energy, a subsidiary of EIG, and Pacific E&P itself last week have only served to confuse the market and send the company’s bond price into the single digits last week.
Harbour Energy offered last week to buy some US$4.1bn of Pacific E&P’s debt, only to see the company announce it would miss January payments on its 2019s and 2025s.
Rating agencies reacted this week, with Moody’s cutting the company to C from Caa3 on Tuesday and S&P dropping its rating to D from CC on Wednesday after warning that it expects the company to enter a “general default.”
“Pacific E&P’s liquidity will remain pressured for a longer period given much lower cash flows due to stressed oil prices, which, will remain so in the foreseeable future,” said Moody’s earlier this week.
Against that backdrop, EIG appealed to investors late Wednesday to participate in a tender for its outstanding 2019s, 2021s, 2023s and 2025s at an early bird tender price of 17.5.
“...We believe the situation will spiral downward now that the cloak of denial has been lifted and in the face of a rapidly deteriorating market environment,” R. Blair Thomas, CEO of EIG said in a statement late Wednesday.
Pacific is highly unlikely to make payments on its 2019s, 2021s, 2023s and 2025s - the bonds Harbour Energy is targeting in its tender, EIG said.
“Our offer presents certainty of value to bondholders in light of a highly complex and uncertain outcome,” it said.
EIG argues that as it is covering accrued and unpaid interest across all tranches, it is effectively providing a price of US$200.66 per US$1,000 in principal - or 100% premium over the average bid price of 10.00 on the bonds.
Bond prices have recovered a touch to trade at around 12-13 on Thursday morning, up from the 8.125 bid seen last week.
To receive Harbour Energy’s 17.5 cents price, holders must submit tenders by the early bird date of January 27, according to last week’s offer. Thereafter but before the February 10 expiration, the price will fall to 12.50.
But several analysts put recovery value at 20 cents and up.
The tender is conditioned upon reaching an agreement with creditors holding at least 80% of total outstanding principal and investors with 66.67% of outstanding on each series.
They must also agree to the restructuring plan, which would involve Harbour Energy injecting capital in return for sole ownership of the Pacific Exploration, according to the offer to purchase debt. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)