Tullow Oil got a US$1.8bn lifeline from the market in May, overcoming deep pessimism over the viability of the trade to rescue the company from a potential restructuring scenario.
The deal saw London-listed Tullow, which has assets in sub-Saharan Africa and Latin America, resolve US$2.4bn of debt hanging over the company and replace it with one large 10.25% five-year non-call two senior secured bond. The previous capital structure had included a US$1.43bn reserve-based lending facility, US$300m of 2021 convertible notes and US$650m of 2022 senior secured bonds.
The key was to find a solution that worked for all of its creditors.
“Tullow was dealing with a huge number of different stakeholders, all pitching for different solutions from their own prisms,” said Alexander Karolev, head of CEEMEA bond syndicate at JP Morgan. “We came up with a one-stop solution for the company to essentially clean up the entirety of their balance sheet.”
JP Morgan (lead-left, B&D), DNB Markets, ING, Standard Bank and Standard Chartered were the bookrunners.
Tullow came to market with bonds that had preliminary ratings of B2 by Moody’s and B– by S&P. The ratings agencies had taken a favourable view of the company’s approach to refinance ahead of a liquidity squeeze, having previously dumped Tullow into Triple C territory in 2020. The deal subsequently paved the way for the company to be upgraded to B3 by Moody’s and B– by S&P.
Tullow sweetened the deal by tightening covenants in favour of investors, mainly beefing up the language on restricted payments. The deal was more than two times subscribed with over 250 accounts participating from across emerging markets, high-yield and sectoral and regional specialists.
A banker away from the deal described it as a huge trade for Tullow, skirting a narrow line between victory and disaster, with the penalty for failure potentially terminal for the company.
“In the 10 minutes after [we announced the deal] I probably got 10 calls from investors asking: 'are you sure this can get done?'” said Karolev. “Many investors were sceptical but as the roadshow went on, the rationale, structure, timing and solution became clear.”
Stefan Weiler, head of CEEMEA DCM at JP Morgan, said the solution for Tullow required a strategic approach. “You needed the necessary market intelligence to be confident it could get done in this way,” he said. “It was a key transaction for this entity.”
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