Noreco Advisers Sweeten Terms in $520 Million Refinancing

Advisers to Norwegian Energy Co. ASA, a North Sea oil producer facing insolvency, are proposing better terms on part of a 3.1 billion kroner ($520 million) refinancing as bondholders demand even more concessions.

Pareto Securities AS and Arctic Securities ASA are proposing improved terms to the holders of Noreco’s three unsecured bonds, according to a copy of a document sent by the company’s advisers today. The three bonds have an outstanding value of 1.3 billion kroner.

Investors including Storm Capital Management said the offer isn’t good enough and will probably be rejected at meetings on Nov. 5. Noreco Chief Executive Officer Svein Arild Killingland declined to comment on whether the company had offered better terms, saying it was “always open to alternative proposals that safeguard the balance” of the initial plan.

Noreco is seeking bondholder approval to replace six bonds with four new ones carrying lower interest rates and longer maturities. The refinancing, aimed at meeting a potential liquidity shortfall of 1.6 billion kroner, also involves issuing as much as 530 million kroner in new shares.

The company, based in Stavanger, has suffered intermittent output at the Huntington field in the U.K. North Sea and a slew of shutdowns at Oselvar in Norway as well as at Nini, Nini East and Cecilie in the Danish North Sea. It may also need to raise 500 million kroner ($85 million) to cover the cost of abandoning facilities off Denmark’s shores.

‘Voted Down’

Inge Edvardsen and Fabian Qvist, head of fixed income sales at Pareto and Arctic respectively, declined to comment.

Noreco needs approval from owners representing two thirds of each of the outstanding bonds for the plan to be adopted.

“We’re very certain that this will be voted down,” said Morten E. Astrup, chief investment Officer of Storm Capital, by phone from London, adding the company will probably make new proposals. “I’m pretty sure Noreco has understood that the market has called its bluff. It’s not in the interest of the banks or the bondholders to send this to the bankruptcy court.”

The amended deal, which hasn’t been accepted by the board or shareholders of Noreco, proposes that a 367 million-krone convertible bond be convertible at any time and that the maturity on the 736 million-krone second lien bond be reduced to 5.5 years from 7 years. The payment-in-kind interest on that bond would also be removed, according to the document.

‘Better Terms’

“The interest rates on the unsecured loans must be increased and the duration must be significantly reduced,” Astrup said. “It has to be halved.”

Other bondholders said they also expect the company will be forced to present a new proposal.

“They have to come up with better terms,” Alfred Berg Kapitalforvaltning portfolio manager Arne Eidshagen said in a phone interview. “We’ll consider it then. I think they will have to come before the meeting.”

Bondholders are putting together a guarantee group of at least 200 million kroner that could step in if the refinancing plan isn’t adopted and current guarantors pull out, according to Torstein Oeygarden, a private investor.

“The signals I see today are that this will be voted down in at least one of the loans,” he said by phone from Stavanger. Oeygarden represents creditors holding 15 million kroner of Noreco bonds, he said.

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