Mr. Alexander Molyneux reports
PALADIN ENERGY LIMITED: STRATEGIC AND FUNDING PROCESS: PROPOSED BALANCE SHEET RESTRUCTURING
Paladin Energy Ltd. has resolved to enter into a proposal to restructure its balance sheet, which, if implemented, will have the effect of reducing its debt obligations and extending the maturity of remaining debt. In the absence of further progress on the potential sale of a 24-per-cent interest in the Langer Heinrich mine (LHM), the purpose of the restructure proposal is to address the upcoming maturity of Paladin's outstanding $212-million (U.S.) 6-per-cent convertible bonds due April 30, 2017, with a holistic solution that provides a stable and sustainable capital structure for the benefit of all stakeholders, and a platform for future growth when the uranium market improves.
The restructure proposal contemplates $362-million (U.S.) (comprising all outstanding 2017 convertible bonds and 2020 convertible bonds) to be exchanged into:
- $115-million (U.S.) of new secured bonds due 2022, with a 7-per-cent cash coupon;
- $102-million (U.S.) of new 2024 convertible bonds, with a zero coupon and conversion price of 5.12 U.S. cents a share (approximately seven Australian cents a share);
- $145-million (U.S.) of Paladin shares at five Australian cents a share;
Any accrued unpaid interest to be exchanged 75:25 into the new secured bonds and the new 2024 convertible bonds, respectively.
Bondholders representing 57 per cent of the 2017 convertible bonds and 41 per cent of the 2020 convertible bonds have already signed binding undertakings to support the restructure proposal.
Key conditions to restructure proposal:
EDF consent to amendments to the long-term offtake agreement allowing early deliveries against the prepayment amount paid by EDF in 2012, and security sharing arrangements with the new secured bonds and the new 2024 convertible bonds;
Formal approval of holders of existing convertible bonds;
Approval of shareholders;
Company to conduct an equity raising of a minimum of $75-million (U.S.);
Paladin continuing to hold 75 per cent of LHM;
There being no superior proposal;
All necessary regulatory approvals, including Australia's Foreign Investment Review Board;
Consent of existing secured parties to the grant of subsequent ranking security in favour of EDF, the new secured bonds and the new 2024 convertible bonds;
Company to propose a 1:10 share consolidation.
A number of holders of the company's 2017 convertible bonds ($212-million (U.S.) outstanding) and $150-million (U.S.) 7-per-cent convertible bonds due March 31, 2020, have signed binding undertakings, pursuant to which those bondholders have agreed to support the restructure proposal. The restructure proposal proposes that the total $362-million of existing convertible bonds will be exchanged into:
- $115-million (U.S.) (approximately 32 per cent) of new secured bonds due 2022, with a 7-per-cent cash coupon;
$102-million (U.S.) (approximately 28 per cent) of new 2024 convertible bonds, with a zero coupon and conversion price of 5.12 U.S. cents a share (approximately seven Australian cents a share);
- $145-million (U.S.) (approximately 40 per cent) of new Paladin ordinary shares to be issued at five Australian cents a share (see new bondholder share issue below);
- Any accrued unpaid interest on the existing convertible bonds outstanding at completion of the restructure proposal to be exchanged 75:25 into the new secured bonds and the new 2024 convertible bonds respectively.
The restructure proposal is the result of having had discussions with a number of key stakeholders over the past few weeks. To date, the bondholders that have entered into commitment deeds to support the restructure proposal own bonds representing 57 per cent of the 2017 convertible bonds and 41 per cent of the 2020 convertible bonds. A number of other bondholders have been briefed on the restructure proposal and are finalizing their internal procedures to execute undertakings as well. In order to implement the restructure proposal, the company will require the support of bondholders representing up to 75 per cent of each of the 2017 convertible bonds and the 2020 convertible bonds. Until undertakings have been received from the requisite majority of bondholders and the other conditions have been satisfied (set out below), the restructure proposal remains highly conditional. In the absence of further progress on the LHM stake sale, Paladin intends to work toward completing the relevant conditions to closing the restructure proposal with the aim of implementing it in the second quarter of the 2017 calendar year.
Paladin believes the implementation of the restructure proposal will be a positive outcome, which will enable it to address its obligations in respect of the $212-million (U.S.) outstanding 2017 convertible bond whilst at the same time preserving value for shareholders and positioning them to benefit when uranium prices recover with a stable and sustainable debt structure.
Regarding the restructure proposal, chief executive officer Alex Molyneux said: "In the absence of the Langer Heinrich stake sale, I'm very happy that our bondholders are supporting the company with a viable restructure that preserves long-term value for all stakeholders.
"Paladin will have a manageable debt load with a longer-term repayment profile, which means the company is better positioned to ride out the current poor uranium market conditions and generate upside for shareholders when uranium prices have recovered."
Regarding the uranium market, Mr. Molyneux said: "The precipitous fall in uranium prices to 12-year lows in 2016 was largely exacerbated by a lack of purchasing activity from U.S. nuclear utilities. However, we might just be seeing a reversal of that now."
He went on to say:
"The price of natural gas, a key competitor in the [United States], is up 50 per cent from its lows of just over 12 months ago, and its becoming clearer that nuclear will enjoy more policy support in the U.S. as a clean and strategic energy source.
"We have seen U.S. buyers return to dip a toe in the market with a couple of major tenders just prior to Christmas, and uranium spot has finally shown some positive momentum, which we expect to continue if buyers continue to return to the market."
Benefits of the restructure proposal
Key benefits of the restructure proposal, if implemented, include:
Ownership of LHM maintained
-- Paladin will continue to own 75 per cent of LHM, meaning the company's exposure to a unique, strategic Tier 1 uranium mine will not be diluted as was proposed by the LHM stake sale.
Exposure to uranium upside maintained
-- The company will continue to be positioned as the senior uranium company with better leverage to an improved uranium market, albeit with a lower-risk balance sheet to enable equity investors to benefit from such upside in the event the uranium market takes longer to normalize than expected.
Substantial reduction in total debt
-- Paladin's total debt of $382-million (U.S.) (including $20-million (U.S.) drawn under the LHM revolving credit facility) will be immediately reduced by $145-million (U.S.) (approximately 38 per cent) to $237-million (U.S.).
Extension of maturity profile for debt
-- The new secured bonds will be repayable in 2022 and the new 2024 convertible bonds two years after that, compared with the present position where all of the company's current debt is due within or before 2020.
Better positioned for growth
-- As the market improves, the lower debt position will ensure Paladin is better positioned to consider consolidation and growth opportunities in the future.
New secured bonds
For every $1,000 (U.S.) in principal of the existing convertible bonds, bondholders will receive $318 (U.S.) in new secured bonds, that is, approximately 32 per cent of the principal of the existing convertible bonds, for a total outstanding amount of $115-million (U.S.). In addition, 75 per cent of the accrued interest on the existing convertible bonds at completion of the restructure proposal will be exchanged into the new secured bonds.
The new secured bonds will have a maturity date of approximately April, 2022, and carry a coupon rate of 7 per cent per annum payable in equal half-yearly instalments on May 31 and Nov. 30 of each year.
The new secured bonds will have second-ranking security over certain assets currently subject to security in favour of Nedbank Ltd. or other secured parties, and a first-ranking security over other assets that are not subject to the existing security or new material assets (bond security). The bond security is proposed to rank equally with Electricite de France (EDF) in respect of amounts owing by Paladin under a long-term supply contract dated Aug. 8, 2012 (LTSC), and a prepayment agreement dated Aug. 28, 2012. Provision of such bond security and other requirements of the bondholders will be conditional on EDF's consent to amendments to the LTSC allowing early deliveries against the prepayment amount paid by EDF in 2012, and security sharing arrangements with the new secured bonds. Paladin will have the right to redeem any of the new secured bonds at any time at a redemption price equal to the outstanding principal amount plus an additional early redemption fee calculated as a percentage of the outstanding principal amount (initially 10 per cent and reducing by 2 per cent on each anniversary of issuance).
No dividends can be payable to Paladin shareholders until new secured bonds are repaid.
New 2024 convertible bonds
For every $1,000 (U.S.) in principal of the existing convertible bonds, bondholders will receive $282 (U.S.) in new 2024 convertible bonds, that is, approximately 28 per cent of the value, for a total outstanding amount of $102-million (U.S.). In addition, 25 per cent of the accrued interest on the existing convertible bonds at completion of the restructure proposal will be exchanged into the new 2024 convertibles bonds.
The new 2024 convertible bonds will have a maturity date of approximately April, 2024, with zero coupon and be secured, however, subordinated to existing security and the bond security (including EDF's interest in the bond security).
The new 2024 convertible bonds will initially be convertible into ordinary shares at 5.12 U.S. cents a share (conversion price) (approximately seven Australian cents a share) at the option of bondholders. However, the conversion price will be adjusted downward if the price of the new equity issue is less than certain thresholds. Furthermore, if the volume-weighted average price (VWAP) of Paladin shares for the three months prior to Jan. 1, 2020, is less than 3.66 U.S. cents a share, then the conversion price will be adjusted to 3.66 U.S. cents a share.
Paladin will have the right to redeem the new 2024 convertible bonds at any time post the first anniversary of issuance if the 30-day VWAP is at least 130 per cent of the early redemption amount at the time divided by the exchange ratio, where early redemption amount is calculated based on a 6-per-cent compound capitalization rate from the date of issuance and the exchange ratio is calculated by dividing $1,000 (U.S.) by the prevailing conversion price.
Bondholder share issue
For every $1,000 (U.S.) in principal of the existing convertible bonds, bondholders will receive 10,929 ordinary shares (that amount representing $400 (U.S.), approximately 40 per cent, of the value at an issue price of five Australian cents a share).
Bondholders will receive additional ordinary shares in the event the new equity issue is below certain thresholds.
Restructure proposal key conditions
The restructure proposal is subject to a number of conditions being satisfied, including:
The holders of 2017 convertible bonds and 2020 convertible bonds approving the restructure proposal by the requisite majorities;
EDF consent to amendments to the LTSC allowing early deliveries against the prepayment amount paid by EDF in 2012, and security sharing arrangements with the new secured bonds (and to the extent necessary to the subordinated security on the new 2024 convertible bonds);
- Paladin continuing to hold 75 per cent of LHM. CNNC Overseas Uranium Holdings Ltd. (COUH) might be entitled to acquire Paladin's interests in LHM in certain solvency-related scenarios, so that it is a condition to the restructure proposal that this does not materialize;
Holders of Paladin's ordinary shares approving the restructure proposal;
There being no superior proposal;
Paladin raising a minimum of $75-million (U.S.) via the new equity issue (see below);
- All necessary regulatory approvals, including Australia's Foreign Investment Review Board;
Consent of existing secured parties to the grant of subsequent ranking security in favour of EDF, the new secured bonds and the new 2024 convertible bonds.
New equity issue
Prior to completion of the restructure proposal, Paladin will be expected to raise a minimum of $75-million via a new equity issue. The company will consider structure and terms of the new equity issue based on feedback from shareholders and potential new shareholders. Given the clear benefits of the restructure proposal, Paladin aims to consider a structure that enables existing shareholders to maximize their participation.
The company has resolved to undertake a 1:10 share consolidation concurrent with the restructuring proposal and associated transactions. All share prices and per-share metrics in this announcement are presented on a preshare consolidation basis and would be adjusted accordingly for the share consolidation.
Status of LHM stake sale
As noted in the company's announcements of Nov. 10, 2016, and Dec. 1, 2016, discussions with COUH regarding the LHM stake sale continue, but definitive documents have as yet not been executed. With the passage of time continuing and COUH still unable to notify Paladin when it may be in a position to have the requisite approval to execute the definitive documents, the company now believes there is a low likelihood that COUH will consummate the LHM stake sale in a timely manner.
Restructure proposal indicative milestones
The bondholders that have provided their support for the restructure proposal have agreed a standstill on obligations under the existing convertible bonds until June 30, 2017, to facilitate completion of the restructure proposal. The standstill can lapse on certain events; for example, an investor elects to terminate the standstill where an insolvency event occurs that results in there being no reasonable prospect of the successful completion of the restructure proposal. Paladin is scheduled to make a first presentation of the restructure proposal to EDF shortly.
A timeline of indicative key milestones includes:
January, 2017: Receive undertakings from a sufficient majority of bondholders of the existing convertible bonds by value or proposing formal bondholder extraordinary general meetings
March to early April, 2017: Complete conditions
Late March, 2017, to late April, 2017: Close transaction, issue new shares and bonds
© 2019 Canjex Publishing Ltd. All rights reserved.