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Tuesday, 23 July 2019

Turnaround deal

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Anton Oilfield Services Group earns this year’s Turnaround Deal award for a transaction that dealt with a near-term maturity and earned it ratings upgrades and breathing room while oil prices were in the doldrums.

At the start of IFR’s review period in late 2017, Beijing-headquartered Anton was struggling with the low oil price and staring down a US$242.25m maturity in less than 12 months, putting its issuer ratings of Caa1/CCC (Moody’s/Fitch) under threat.

Its solution was an exchange offer with a new money component, giving bondholders the choice of exchanging into new notes with a longer maturity and higher coupon or holding onto the bonds and waiting for them to be redeemed.

Since the exchange did not involve a haircut, rating agencies did not consider it a distressed exchange. Success, however, was critical. Moody’s warned that Anton’s ratings would face downward pressure if the exchange offer failed, while Fitch gave it just six months to sort out alternative refinancing arrangements. Appetite for Asian high-yield paper also appeared to be waning, making it far from certain that the deal would succeed, especially at expected ratings of Caa1/CCC– (Moody’s/Fitch).

Anton engaged investors to find out their preferences and yield expectations, and the response showed that it had picked the right approach.

It achieved a solid take-up rate of 70.81% in the exchange, despite high levels of private bank ownership which typically makes it hard to reach all investors. Holders of US$172.249m of Anton’s 2018s exchanged them for new Reg S bonds at a rate of US$1,018.75 for every US$1,000 of old notes.

It also sold US$123.58m of new notes at a cash price of 99.366 with a coupon of 9.75% to yield 10%. While it was a bond-for-bond exchange, Anton paid an additional US$6.34 in cash per US$1,000 of exchange notes in order to round up to par and give bondholders participating in the exchange offer the same equivalent yield as new investors.

Raising new money was especially impressive, given that three Asian high-yield issuers had pulled deals in mid-November. The 10% yield was also inside secondary quotes of 10.25% for the 2018s, despite the maturity extension.

It was also the minimum yield Anton had indicated to investors earlier in the process, yet still managed to attract a diverse mix of investors, including real money accounts.

Rating agencies responded by upgrading the issuer immediately, with Moody’s raising it to B3 from Caa1, noting the improvement in its maturity profile and liquidity, while Fitch upgraded it to B– from CCC.

In January, Anton redeemed the remaining US$71m of 2018 bonds. In April Moody’s upgraded the company again, to B2, while Fitch raised it to B in October.

Nomura was dealer manager for the exchange and sole global coordinator for the new issue.

To see the digital version of this review, please click here .

To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com .

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