Revealed: Hong Kong tycoon unhappy with Premier Oil's $2.8 billion debt deal; looking to form blocking group with other convertible bond investors - sources - part 2

Wednesday, 1 March 2017, 5:06 pm

Oh look - Pyrrho Investments has confirmed my tale from earlier on in the day and last week. In case you missed it, I have pasted the announcement below:

Pyrrho Investments Limited ("Pyrrho"), an investment fund, notes the Refinancing update announcements made by Premier Oil ("the Company") from February 2017 to date.

Pyrrho is one of the 3 largest convertible bondholders in Premier Oil with approximately 10% of the total convertible bonds in issuance.

We wish to express our deep dissatisfaction with the offered terms and consultation process to date. We put forward the following suggestions to improve the terms for all bondholders.

With regards to the refinancing terms, we believe:

· That the maturity extension beyond the revised maturity date set for Private Lenders and senior bank lenders puts bondholders in an undesirable subordinated position;

· The conversion pricing formula gives no certainty to bondholders as to an upper cap conversion price, and makes the proposed reset conversion price subject to the vagaries of market sentiment during the initial 22 trading days post announcement;

· The proposed mechanism for paying the 2.5% per annum interest coupon is too complex. It should be at the election of the bondholder, not the Company, as to whether we receive shares or cash for this periodic interest payment.

We would also like to express our concern with the lack of transparency and poor communication in the process by which the Company and its representatives attempt to restructure the convertible bond.

On 6th February 2017 Pyrrho had to proactively contact Moelis & Company to let them know that Pyrrho is a major bondholder. Since then, despite our significant holding of convertible bonds, Moelis has kept us at a distance and made no attempt to invite us on to the "ad hoc committee of convertible bondholders" as referenced by Premier Oil in its recent announcements.

Instead, since our initial contact, Pyrrho has been instructed by Moelis to await the term sheet of the proposal.

Pyrrho finally received this term sheet on 24th February 2017. This was presented as a final 'fait accompli' term sheet, leaving Pyrrho 72 hours to accept or decline. Pyrrho has been given no financial analysis of the Company's proposal to justify its fairness to bondholders.

As such, Pyrrho believes that the procedure to date has been unduly hasty and that the so called "ad hoc creditors committee" is, by no means, representative of the broader community of bondholders.

Premier Oil refers to an 'alternative mechanism' to alter convertible bondholders' terms if they fail to achieve approval at the EGM. We believe this process will be fraught with legal risks to the Company and may be subject to legal challenge by bondholders. This would lead to a lengthy period of uncertainty for Premier Oil, placing its debt restructuring plan in doubt and delaying the Company's re-entry as a participant in normal capital markets. Pyrrho therefore suggests that the Company improves its offer of revised terms to convertible bondholders.

Pyrrho's suggestions are incremental, reasonable and will benefit all bondholders by providing a much fairer treatment to creditors of all classes.

We note the announcement made by Premier Oil on 1st March 2017 stating they have 47% of the convertible bond 'locked up' and in favour of the current proposed terms. Pyrrho draws bondholders attention to the fact that the Company is a long way from the 75% minimum vote needed to pass on this resolution at the EGM of bondholders.

Pyrrho is currently opposed to this resolution and has 10% of the current voting rights. If other bondholders concur with Pyrrho, a no vote can easily reach 25%, which will prevent this resolution from being passed.

Pyrrho encourages any other bondholders who are dissatisfied with the Company's proposed terms and opaque consultation process to contact us as detailed below.


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