ENQUEST BOND ENQ1

Selling below 100 (98.30) Why ? Worth buying ?Views welcome please .Thanks !
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Comments

  • Just a stream of thoughts, nothing more......Equity price underperforming. Brent crude price drifted off a bit. The Scottish Independence referendum. This for a bit of flavour:-

    http://www.iii.co.uk/articles/186744/dramatic-changes-enquest-forecasts

    Etc., etc.

    Having said all that I had a few at 98p myself to broaden my portfolio :-) But not a "bet the farm amount.

    h2
  • Price moved upto 99+
  • WOW - big drop today to 66.5/68 for 14.61% YTM. Very tempted.
  • Bought some a couple of weeks ago at 90p and some more this morning at 77.3. My bother-in-law just bought some at 67p. I think the company has enough resilience to withstand a very low price for 6-12 months (see Oliver's review). Cuts in production globally should stabilise the price at a sustainable level for ENQ by then. The government will also have to look at the whole tax / incentive regime for the North Sea, if the viability of producers such as ENQ is threatened. The company is obviously in for a horrible time over the next couple of years but I believe its chances of survival are better than those reflected in the current bond price.
  • I've bought some today at 67.2 (average price including original holding is now 85p) Obviously quite risky but with a good chunk of 2015 production hedged my own view is they will be ok. I wouldn't want to hold the shares though as I think it possible they will be tapped for cash at some point...
  • Agreed - in at 67.93 today. Directors putting significant amounts into the equities, reasonable levels of production hedged, my personal view of the oil price is that I don't see it being very (this) low over the medium term due to geopolitical risks.
  • Now at 48p.
    Is it a Buy or a Bi Bi?
    SP down to 23p
  • Suggest one waits until Enquest provide an news update, and in addition for Oil prices to stay level for at least a month or two before committing further funds!
    Made the mistake at investing at 90p! (on a downward trend!)
  • I am considering a gamble on these and/or Premier oil. I am thinking that the shares themselves might be worth chancing, rather than the bonds.
  • Missed the boat :(
  • missed the boat - what price were you hoping to get in at?
  • They were at 50 and moved to 65 on 23.01. Big yield difference 18%, down to 13 odd. Boat not quite missed but first class cabin maybe.
  • I was not looking for a specific price, I was/am just dithering.
  • So I have a question on the ENQLN 5.5% 2022 bond.

    Bond prospectus says - "For so long as any Note or Coupon remains outstanding, the Issuer shall ensure that, as at each Reference Date, (i) the Leverage Ratio is less than 3.0x; and (ii) the Interest Coverage Ratio for 12mths ending such Reference Date is not less than 4.0x."

    So the question is: if the company has managed to get the banks to relax the leverage covenant to 5.0x, shouldn't they also ask the bondholders for the same?? And if they were to ask for such approval, what will they be willing to offer in exchange (if anything)?!
  • Apologies in advance for the long post - thought I'd share for those interested in Enquest.


    Standard and Poor's affirms EnQuest's B+ rating; Outlook Negative.

    - U.K.-based oil and gas group EnQuest has put in place significant hedging positions in 2015 and 2016 to protect operating cash flow generation;
    - In addition, the company has successfully renegotiated its revolving credit facility covenants to ease the potential for pressure on its liquidity that Standard and Poor's saw in December 2014, when Standard and Poor's placed the rating on CreditWatch negative.
    - Standard and Poor's is therefore affirming the 'B+' long-term rating on EnQuest, removing it from CreditWatch with negative implications, and assigning a negative outlook.
    - The negative outlook reflects EnQuest's limited financial flexibility given its capital expenditure commitment to the Kraken development and the current low oil prices.

    Standard & Poor's Ratings Services today affirmed its 'B+' long-term corporate credit rating on U.K.-based oil and gas company EnQuest PLC. At the same time, Standard and Poor's removed the rating from CreditWatch with negative implications, where Standard and Poor's placed it on Dec. 22, 2014.
    The outlook is negative.

    Standard and Poor's also affirmed the 'B' issue rating on EnQuest's senior unsecured debt and removed it from CreditWatch with negative implications. The recovery ratings on this debt are unchanged at '5', with recovery expectations in the lower half of the 10%-30% range.

    The affirmation reflects the view that EnQuest's liquidity will remain adequate for at least the next year, despite the company's fairly inflexible capital expenditure (capex) profile. Standard and Poor's also expects cash flow generation to be largely protected from the current low prices by the company's hedging positions. The company has hedged 10 million barrels (bbl) in 2015 at about US$65/bbl--after it realized a gain of US$100 million from its initial hedged position for 2015--and has hedged 10 million bbl at about US$68/bbl for 2016. This represents more than 80% of 2015 production and about 60% of 2016 production.

    That said, Standard and Poor's still sees only moderate headroom in the rating, given EnQuest's dependence on the Kraken development coming online without delays and hitting its production targets. This development, together with the Alma/Galia development, is forecast to increase production to around 60,000 barrels of oil equivalent per day (boepd) in 2017 from about 28,000 today. Such a sizable project inherently carries significant execution risk, which in Standard and Poor's' view is somewhat reduced by EnQuest's experienced management team. Furthermore, the project reduces EnQuest's financial flexibility because Standard and Poor's does not expect EnQuest to cut its capex plan further after it updated it to US$600 million in 2015 from about US$700 million-US$800 million. Standard and Poor's projects that EnQuest will reduce its leverage from 2017, supported by the solid contribution of its producing assets, and the increase in production from reserves being newly developed.

    The potential risk to credit metrics during the development period has led us to see EnQuest's financial risk profile as weaker: "aggressive," rather than "significant." Standard and Poor's forecast that EnQuest's Standard & Poor's-adjusted debt to EBITDA could peak at above 3.0x in 2015 and 2016 and it could have negative free operating cash flow overall for 2015 and 2016 due to the company's use of cash flow and committed bank lines to fund its investment program. However, because Standard and Poor's no longer applies a negative modifier, there is no overall effect on the rating on EnQuest. Standard and Poor's removed the negative adjustment under our comparable ratings analysis, as EnQuest's scale and diversification are in line with peers at the 'B+' rating level.

    In the base case, Standard and Poor's assumes:
    - A Brent oil price of US$55/bbl for 2015 and US$65/bbl in 2016, increasing to US$80/bbl from 2017.
    - Production of about 27,895 boepd in 2014, increasing to about 45,000 boepd in 2016 reflecting reservoir performance from EnQuest's existing hubs in 2014, combined with acquired production in Malaysia and some contribution from Kraken.
    - Capex cut to about US$600 million in 2015 and 2016, from about US$1.1 billion in 2014.
    - No dividend payments. EnQuest has not declared or paid any dividends since incorporation in January 2010, and does not have any plans to pay dividends in the near future.
    - No material cash income tax payments over the next five years. EnQuest benefits from tax incentives, and the group's significant investment profile generates allowances that offset its tax liability to the extent of capex.

    Standard and Poor's adjusted EnQuest's debt in its calculation to incorporate two financial liabilities in EnQuest's financial statements--its asset retirement obligation and Kraken "carry" (US$194 million and US$164 million, respectively, for the fiscal year 2013)--and carried these adjustments in our projections.

    Based on these assumptions, Standard and Poor's arrives at the following credit measures:
    - Funds from operations (FFO) to debt between 25%-30% in 2015 and 2016.
    - Standard & Poor's-adjusted debt to EBITDA modestly above 3x in 2015 and 2016.
    - Material improvement in credit metrics from 2017, based on both increased generation and high oil prices.

    The negative outlook reflects the view that EnQuest has little rating headroom under our US$55/bbl-US$65/bbl oil price assumptions for 2015-2016, given the capex needed to bring its Kraken development to production. That said, Standard and Poor's factors into the rating that the company's hedging somewhat protects its cash flow generation for 2015 and 2016. Standard and Poor's also understand that the company is lowering its operating costs and its capex from the US$700 million-US$800 million range to about US$600 million, due to current market conditions.

    Standard and Poor's could lower the rating if Standard and Poor's anticipates that adjusted debt to EBITDA could increase to about 3.5x-4.0x or if unforeseen production issues compromise the assumption of meaningfully higher cash flow generation from 2017.
    Standard and Poor's could raise the rating if financial headroom increases as expected, thanks to the increase in production.
  • VSI, very useful information, thank you!
  • I'd raised this point in my query above on Feb 17. Company's press release from today:


    Enquest launches consent solicitation to amend financial covenants on STG 155m 5.5% notes due 2022

    EnQuest PLC (the "Company") today announces that it is inviting holders ("Noteholders") of its outstanding £155,000,000 5.50 per cent. Notes due 15 February 2022 (the "Notes") (ISIN: XS0880578728, Common Code: 088057872) issued pursuant to its £500,000,000 Euro Medium Term Note Programme to consent to certain modifications to the terms and conditions of the Notes (the "Conditions") and the trust deed dated 24 January 2013 as amended and supplemented from time to time (the "Trust Deed") between the Company and U.S. Bank Trustees Limited (the "Trustee") constituting the Notes (such invitation, the "Consent Solicitation"), as described briefly below and in more detail in a consent solicitation memorandum dated 10 April 2015 (the "Consent Solicitation Memorandum").
    The proposals that the Company is inviting Noteholders to approve will, if approved and implemented, modify the Conditions and the Trust Deed (by the execution of a supplemental deed to the Trust Deed (the "Supplemental Trust Deed")) as follows (together, the "Proposals"):
    (a) to amend the financial covenants such that, in respect of any Reference Date falling during a limited period from the date on which the Supplemental Trust Deed is duly executed to (and including) 31 December 2016 (the "Covenant Amendment End Date"):
    (i) the Leverage Ratio shall be less than 5.0:1.0 (currently 3.0:1.0); and
    (ii) the ratio of EBITDA to Finance Charges shall be not less than 3.0:1.0 (currently 4.0:1.0),
    after which time such financial covenants will revert to the current levels, which shall remain in effect until the date on which the Supplemental Trust Deed shall have been duly executed; and
    (b) to amend the Rate of Interest for a limited period of time such that if the Company delivers to the Trustee a compliance certificate in respect of any Reference Date occurring after the date on which the Supplemental Trust Deed is duly executed to (and including) the Covenant Amendment End Date certifying that the Leverage Ratio was more than 3.0:1.0, the Rate of Interest for the immediate next following Interest Period commencing after the date of such compliance certificate shall be 7.00 per cent. per annum.
    The Proposals seek to bring the financial covenant levels in the Notes into line with the amended covenants in the Company's secured revolving credit facility, as announced by the Company on 23 January 2015. The financial covenants in the Notes would revert to their current levels from (and including) the Reference Date on 30 June 2017.
    The Proposals include all consequential amendments necessary to implement the above modifications.
    In connection with the Consent Solicitation, the Company's CEO Amjad Bseisu said:
    "This is a prudent and precautionary step to provide us with the flexibility to complete the capital expenditure programme that will significantly enhance the Group's production and cash flow. This brings the Leverage Ratio in the Notes in line with our revolving credit facility whilst offering Noteholders a coupon of 7.00 per cent. if the Leverage Ratio is three times or above. We consider the Proposals to be fair for Noteholders and are encouraged by initial indicative support from Noteholders representing approximately 42 per cent. in aggregate principal amount of the outstanding Notes."
    The Consent Solicitation is made on the terms and subject to the conditions contained in the Consent Solicitation Memorandum and should be read in conjunction with such Consent Solicitation Memorandum. Capitalised terms used but not otherwise defined in this announcement shall have the meaning given to them in the Consent Solicitation Memorandum.
    An indicative timetable for the Consent Solicitation is set out below and in the Consent Solicitation Memorandum.

    RATIONALE FOR THE PROPOSALS
    While the Company believes that it will be able to operate within the limits imposed by the Group's borrowings (including the financial covenants under the Notes which the Company proposes to modify by the Consent Solicitation), further sustained falls in the oil price or other adverse developments would reduce headroom and could impact the Group's ability to implement its capital expenditure programme. Therefore, as a prudent and precautionary measure, the Company is seeking an amendment to the Notes to bring the financial covenant levels in the Notes into line with the amended covenants in the Company's secured revolving credit facility, as announced on 23 January 2015. The financial covenants in the Notes would revert to their current levels from (and including) the Reference Date on 30 June 2017.
    Continued compliance with all of the covenants imposed by the Group's borrowings remains a priority for the current financial year and beyond. As such, the Proposals would provide the Group with continued flexibility of funding to implement its capital expenditure programme.

    Support of certain Noteholders
    The Proposals have been considered by a number of significant holders of Notes approached by the Company on a confidential basis. Based on feedback from such Noteholders, the Company has received indicative support for the Proposals from Noteholders representing approximately 42 per cent. in aggregate principal amount of the outstanding Notes.

    CONSENT FEE
    Noteholders who vote in favour of the Extraordinary Resolution by delivering or procuring the delivery of a Consent Instruction (which is not validly revoked) will be eligible to receive a Consent Fee of 0.20 per cent. of the aggregate principal amount of Notes which are the subject of such Consent Instruction. In order to be eligible to receive such Consent Fee, the Tabulation Agent must receive such Consent Instruction by the Voting Deadline.
    The Consent Fee will be payable in one instalment on the Consent Fee Payment Date only if the Extraordinary Resolution in respect of the Proposals has been approved and the Supplemental Trust Deed has been duly executed.
    MEETING OF NOTEHOLDERS
    Notice (the "Notice") of a meeting (the "Meeting") of the Noteholders to be held at the offices of Ashurst LLP at Broadwalk House, 5 Appold Street, London EC2A 2HA, United Kingdom at 10.00 a.m. (London time) on 5 May 2015 has been published in accordance with the Trust Deed.
    At the Meeting, Noteholders will be asked to consider and, if thought fit, pass an extraordinary resolution as set out in the Notice (the "Extraordinary Resolution"), which will provide, among other things, for the Trustee to be authorised and requested to concur in and execute the Supplemental Trust Deed, which will implement the Proposals and effect the modifications to the Conditions and Trust Deed outlined in the Consent Solicitation Memorandum.
    If the Extraordinary Resolution is passed, the proposed modifications to the Conditions and the Trust Deed will be binding on all Noteholders, including those Noteholders who do not vote in respect of, or vote against, the Proposals.

    GENERAL
    Details of how to participate in the Consent Solicitation are set out in the Consent Solicitation Memorandum. Noteholders may obtain a copy of the Consent Solicitation Memorandum by contacting the Tabulation Agent, the contact details of which are set out immediately below.
    Notices throughout the Consent Solicitation will be published in accordance with all applicable rules and regulations as follows:
    (a) a notice in Euroclear Bank S.A./N.V. and Clearstream Banking, société anonyme for communication to accountholders;
    (b) an announcement released on the London Stock Exchange plc's regulatory news service; and
    (c) a notice published on Bloomberg,
    and by any other means as the Company may, in its absolute discretion, consider appropriate.
  • And here's Barclays view on it:

    BARCLAYS: First Look: EnQuest - Revised covenants for 2022 loan notes

    Abstract:
    Our view: By relaxing the covenants on its £155m loan note issue due in 2022, EnQuest should alleviate near-term investor concerns regarding a covenant breach. However, as we stated when the covenant levels of the Revolving Credit Facility were amended in January, the revised thresholds could be tested during 2016 if Brent remains below $60/bbl. More generally, we believe covenant risks are less significant for EnQuest than project execution risks during completion of the Alma development (due onstream later this year) and the company's capacity to maintain sufficient financial headroom while developing the Kraken field in a prolonged low oil price environment. We continue to rate the stock Underweight. Covenants aligned Subject to noteholders approval, the 2022 loan note covenants are to be temporarily reset until mid-2017 in line with the terms of EnQuest's Revolving Credit Facility - a maximum Leverage ratio (Net Debt/EBITDAX) of 5x and a minimum EBITDA to Finance Charges ratio of 3x. In exchange for approval of the revised terms, the interest rate on the notes is to be temporarily increased to 7% from 5.5% p.a. if the leverage ratio exceeds 3x (the previous threshold). A one-off consent fee of 0.2% of aggregate principle outstanding is payable to noteholders who vote in favour of the resolution. An extraordinary meeting for noteholders is scheduled to vote on the proposal at 10am on 5 May. The resolution requires approval from 75% of votes cast. Management has stated it has initial indicative support from note holders representing ~42% the total outstanding notes.
  • Gugenheim Securities Broker comment:

    EnQuest PLC ENQ Enquest PLC 5.5 per cent notes update

    Nothing major in this - brings it in line with the bank Group's covenants
    Consent Fee 20bps, and 42% of holders have agreed to the proposal

    We still are positive on the situation - and this was expected

  • VSI, Thank you for your information, much appreciated

  • Noteholders who vote in favour of the Extraordinary Resolution... will be eligible to receive a Consent Fee of 0.20 per cent. of the aggregate principal amount of Notes which are the subject of such Consent Instruction.
    What does that mean? 10£ if you hold 5,000 of them?
  • Giammy85. You are correct. Generous indeed!

    The question is, what did the bank providers of the lending facility receive to alter their terms? Quite possibly more. I would pursue this question if I had more time, but I don't. Therefore I suppose you should just collect your £10 which can go towards filling up 1/8 of your petrol tank.
  • I can't! Jarvis charges £20+VAT for proxy services and the Tabulation Agent Lucid Issuer Services said they can't take instructions directly from me. So I guess it's a NO for me :(
  • As a holder of the bond, through Selftrade, I was a little concerned not to have heard anything about the 'Consent Solicitation' so I queried it. The reply helpfully stated "...there are no messages relating to this at present, If this is something we will offer you will be notified and then you will action whatever the secure message states. I cannot take any instruction from you until such time...." Oh dear!, perhaps the transfer to Equiniti hasn't bedded down too well. Still as someone else pointed out the financial inducement isn't that great unless you're holding very large amounts.
  • Just done my democratic duty online with HL. Seemed straightforward enough.

    This bond seems to be perking up a little. I guessed it had dropped a bit too far. Anyone have a view on where and when it might settle down? The share price is also picking up which offers a little more comfort to bondholders.
  • I also had a nice message from HL about expressing a view this one. Not so bothered about my 'reward' for saying yes... happier about the increase in price ... tempted to take a nice profit on this one.. but I think I am going to hang on and see where it goes....
  • spoke to Barclays Stockbrokers about this yesterday - they haven't got a clue about it
  • Just got back from a couple of days away to find that Selftrade have now given me the chance to vote on the 'Consent Solicitation'. It only took two separate queries for some one to do their homework and look into it!
  • Operational Update - there is still some fight in the dog.

    http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/12613651.html

    http://www.enquest.com/~/media/Files/E/Enquest/CMD Dec 2015/CMD151207Final.pdf

    Disclaimer: This is a very high risk bond... high down side and upside... 10% bid - offer on LSE.
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