Last week, Pacific Exploration & Production Corp. (TSX: PRE) (BVC: PREC), formerly known as Pacific Rubiales, announced that it has obtained an extension of the waivers previously granted by its lenders in respect of the Net Worth Covenant that requires the company to maintain its consolidated net worth above US $1 billion. In addition to the waiver of the Net Worth Covenant, the lenders have granted a waiver in respect of the company’s consolidated leverage ratio of 4:50:1:00, which reflects the permitted gross debt to trailing twelve month adjusted EBITDA. As previously announced on December 17, 2015, several of the company’s lenders have formed a steering committee to negotiate the extension of the waivers of the Covenants.
The waivers were obtained with respect to the: US $1 billion revolving credit and guaranty agreement with a syndicate of lenders and Bank of America as the administrative agent, a US $250 million credit and guaranty agreement with HSBC Bank as agent, a US.$109 million credit and guaranty agreement with Bank of America as lender, and a $75 million USD master credit agreement with Banco Latino Americano de Comercio Exterior, as lender.
Fitch Ratings has downgraded Pacific’s foreign and local Long-term Issuer Default Ratings (IDRs) to ‘CCC’from ‘B-‘. Fitch has also downgraded to ‘CCC/RR4’ from ‘ B-/RR4’ the long-term rating on Pacific’soutstanding senior unsecured debt issuances totalling approximately USD $4 billion with final maturities in 2019 through and 2025. The ratings were previously on Rating Watch Negative.The downgrade reflects Fitch’s expectations that the company’s capital structure could weaken to
The downgrade reflects Fitch’s expectations that the company’s capital structure could weaken to an unsustainable level over the near term as a result of slower oil price recovery expectations. The rating action also incorporates the company’s delay in the sale of assets to bolster liquidity as well as delays in reaching an agreement with the company’s syndicate of lenders under its USD $1 billion revolving credit facility and other bank loans.
Pacific Rubiales is a Canadian public company involved in exploration and production of natural gas and crude oil, with operations focused in Latin America. The Company has a portfolio of assets with interests in more than 85 exploration and production blocks in seven countries including Colombia, Peru, Guatemala, Brasil, Guyana, Papua New Guinea, Mexico and Belize.
The waivers have been granted for a period of 61 days and will expire on February 26, 2016, subject to the satisfaction of certain terms and conditions, including the company and the steering committee reaching an agreement on or before next Wednesday, January 14, 2016 with respect to a covenant providing for the minimum amount of unrestricted cash to be retained by the company throughout the waiver period. As consideration for entering into the waivers, the company has also agreed to certain restrictions on non-ordinary course transactions and agreed to work with the lenders and their financial and legal advisors during the waiver period.
According to Fitch Ratings, Pacific credit metrics have been materially affected by the sharp decline in oil prices, as well as the company’s debt increase during 2015. Total and net debt/EBITDA for the latest 12 months ended September 2015 have increased to 4.3x and 3.9x, from 1.9x and 1.8x, as of year-end 2014. This was mostly due to due to the decline in global oil prices as well as Pacific’s debt increase of more than USD $600 million during first-half 2015. On the positive side, Pacific reported zero short-term debt as of September 2015.