After Bond Snub, Pacific E&P Suitor Is Back With Unusual Offer

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  • EIG's new offer for Pacific comes with lower price, warning
  • Firm says driller near `death-spiral' after `wasted' month

EIG Global Energy Partners is back with an unusual offer -- and a warning -- after its first two attempts to take over Pacific Exploration & Production Corp. were rebuffed.

Harbour Energy Ltd., an investment vehicle EIG set up in 2014 to buy energy assets, is offering to buy Pacific’s distressed bonds for 16 cents on the dollar with no accrued interest. While that’s less than a previous bid in January of 17.5 cents plus interest that failed to get much support, EIG says investors would be wise to take the offer this time as oil continues its slide and Pacific’s finances deteriorate further. The Colombian crude producer appears to be heading into a “death spiral,” EIG said in a Feb. 10 statement. “The time for posturing and delay is over.”

It’s a strategy that leaves some industry watchers scratching their heads.

“If bondholders didn’t accept 17.5 cents, they’re not likely to accept 16 cents now,” even with better terms, said Omar Zeolla, an analyst at Oppenheimer & Co. “It’s confusing that EIG would continue with a deal that doesn’t have approval.”

It’s EIG’s third attempt to take over the embattled company. It first offered to buy Pacific in a joint $1.7 billion bid with Alfa SAB that was withdrawn in July after the driller’s largest shareholder resisted. Then, on Jan. 13, it targeted a takeover via the company’s debt with an offer that got approval from holders of just 6 percent of the bonds after investors scoffed at the timing of payments and some of the terms. An ad hoc committee of bondholders called the offer “highly conditional.”

The price of Pacific’s benchmark $1.3 billion of bonds due 2019 has fallen since EIG’s revamped offer Feb. 10, losing 2.5 cents to 13 cents on the dollar as of 9:41 a.m. in New York on Tuesday. Pacific said last month it would invoke a 30-day grace period that ends this week on a $31 million interest payment. An external press official for the company declined to comment.

EIG, which aims to force a bankruptcy to take control of the company after buying up at least two-thirds of Pacific’s $4.1 billion of bonds, said its latest offer addresses bondholders’ concerns. The lower price reflects the improved terms, oil’s slide and Pacific’s deterioration, EIG said.

The terms haven’t been accepted by the ad hoc committee, Canadian law firm Goodmans LLP said in a Feb. 12 statement. Goodmans, which represents the ad hoc committee, didn’t reply to a request for further comment.

“Nearly a full month has been wasted,” EIG said in its statement, bringing Pacific “closer to the brink and sharply increasing the risk profile of this transaction.”