Premier Oil’s largest creditor, hedge fund Asia Research and Capital Management (ARCM), has this morning doubled down on its opposition to the North Sea explorer’s proposed acquisition plan.
Earlier this month Premier Oil said it had agreed a $625m (£473.8m) deal with BP to buy two major North Sea assets, and announced a new scheme for paying back its debt.
In response, ARCM said that “it will take all steps to oppose the company’s proposal and will vigorously contest any attempt to implement such proposal via a scheme of arrangement.”
Now the hedge fund has published a series of questions about the plan which it calls on the firm to respond to with “full and transparent responses”.
The questions relate Premier’s belief that the BP acquisitions will generate more than $1bn by the end of 2023.
ARCM suggests that the nature of the deal will instead mean that the cash flow available to Premier and its stakeholders will be reduced.
However, analysts at Stifel disputed this reasoning, saying that as cash flow is typically backdated to the effective date and treated as an adjustment to working capital upon completion, ” this should not be a concern” to ARCM.
As the company’s largest creditor, holding more than 15 per cent of its debt instruments and blocking positions on two of them, ARCM’s opposition suggests it could prove a thorn in Premier’s side.
Its $455m position becomes in the company’s $2.4bn total debt will be due for repayment in May 2021.
Numis analysts came down hard on the hedge fund in a note for investors, saying that “the questions if anything point to just how weak ARCM’s position is in our opinion.”
They added that this morning’s statement “is somewhat lacking in credibility.”
Last week a Scottish court said that the firm could go ahead with its refinancing plan, throwing out a challenge from ARCM.
Judge Sarah Wolfe ruled that the firm could proceed to a creditor vote on the changes.
Since announcing the proposed transactions on 7 January, the level of support from creditors has continued to increase, Premier stated after the judgement.
Of the creditors subject to the schemes, 86 per cent of super senior commitments and 75.2 per cent of senior commitments have agreed to vote in favour of the schemes at the creditor meetings.
Premier’s debt has been under scrutiny in recent weeks, after it was reported that a number of its lenders were pushing the company to divest assets.
The firm tweeted last month that the reports were “factually incorrect and misleading.”
In an announcement earlier this month, the company said that it had reduced its debt by $330m in 2019, taking it below $2bn, in line with its guidance.
Premier’s chief executive Tony Durrant said that “the cash flow generated from the acquired assets will also accelerate the deleveraging of Premier’s balance sheet.”
The proposed acquisitions are expected to be funded through a $500m equity raise, existing cash and a loan of $300m if needed.
Shareholders will vote on the proposed deal at a general meeting to be held in the first quarter of this year.
Completion of the acquisitions is expected by the end of the third quarter of 2020.