Tullow - comment

The headlines will all be about the bond tenders, but firstly, the underlying results are a little disappointing.  Yes, Net debt figure is c.$100m lower than previous guidance, and gearing will end at c.1.3x versus 1.5x guidance given in September.  But, as hinted on the Kosmos call, Jubilee production is below projected, due to delays and reduced water injection, resulting in overall production for FY23 expected to be marginally below 58-60k beepd.  We have 57.5k in our model but had hoped it was a conservative figure.  The Company has improved its free cashflow guidance to $150m from $100m primarily due to higher Gabon sales volumes and deferral of some capital expenditure.  

But the focus will be on the bond tenders.  Earlier this week the Company obtained a $400m 5-year facility, with proceeds to be used for liability management of the 2025 Notes.  Coupled with the cash on balance sheet (c. $550m) the Company are launching two separate bond tenders.  

On the Senior Secured bonds: An Unmodified Dutch Auction, with a minimum price of 89.125% for total consideration of $100m.

On the Senior Notes (subs): A Modified Dutch Auction, prize 90-92%, inclusive of the 5% Early Tender Offer Premium, if tendered before November 29th.  Total Consideration of $300m.  

There is no mention of ratings in the tender documents.  On the back of the previous tender in June, S&P downgraded the senior bonds to CCC+, with the sub-bonds one notch lower at CCC. This was a downgrade of 1 notch on both bonds. The downgrade reflects the higher possibility of further buybacks below par, and S&P may consider further buybacks as tantamount to default and would likely downgrade the notes to F and lower the issuer credit rating to selective default.