Photographer: Chris Ratcliffe/Bloomberg

Freeport’s $2 Billion Anadarko Sale Said to Face Lender Snag

  • Bondholders are demanding more money, stronger covenants
  • Company CFO says it has ‘no reason’ to offer better terms

Freeport-McMoRan Inc.’s bondholders are creating a potential obstacle for a $2 billion asset sale designed to inject cash into the debt-laden commodities producer, according to people with knowledge of the matter.

Some of the creditors want more money and greater protection for allowing the sale of oil and gas assets to Anadarko Petroleum Corp. -- a proposal that requires changes to Freeport’s existing agreement with the lenders. Freeport, which wants to keep the debt on its own balance sheet even as the assets shift to the buyer, is seeking majority approval from five sets of bondholders who together own $2.3 billion of notes to complete the asset sale.

Freeport has been struggling to lift earnings amid a two-year long commodities rout and had its credit ratings cut to junk earlier this year as it grapples with more than $18 billion of debt. The company announced the sale of its Gulf of Mexico assets to Anadarko this month in a move that would allow it to cut debt and clean up its balance sheet.

The bondholders are demanding a bigger consent fee, a higher interest rate on the debt and additional protective covenants to approve the sale, according to a creditor letter to the company obtained by Bloomberg. Without that, they want the debt to move with the assets to Anadarko, which has a stronger credit profile than Freeport. The dissenting creditors together own $1.1 billion of the notes, according to the Sept. 22 letter.

Pushing Ahead

Freeport Chief Financial Officer Kathleen Quirk said the company plans to push ahead with the sale of its assets to Anadarko even without the consent of the bondholders. If it can’t secure bondholder consent for the proposed deal, Freeport will instead strike a merger with its subsidiary Freeport-McMoRan Oil & Gas LLC, the entity that issued the bonds. That deal would allow for the transaction with Anadarko to take place while keeping the debt on the Freeport balance sheet, she said.

“There is no reason” for the company to offer better terms to bondholders, Quirk said. Freeport is offering the creditors holding about $2.3 billion of bonds 25 basis points, or about $2.5 for every $1,000 to obtain the covenant amendment approval.

But law firm Paul, Weiss, which is representing a majority of bondholders in at least two of the series of notes, argues that Freeport’s alternate plan isn’t allowed under the company’s current credit pact because it’s a “related transaction," according to the people with knowledge of the discussions. Paul, Weiss has said Freeport’s credit pact doesn’t allow it to directly or indirectly sell the assets unless the debt is assumed by the buyer, the people said, asking not to be identified because the matter is private.

The bondholders also complained that the company neglected to inform them of all the facts they needed to make an informed decision on whether to approve the sale, the letter showed.

Lauren Nussbaum, a spokeswoman for Paul, Weiss, didn’t respond to requests for comment.

Freeport has already had to extend a consent deadline and the next one is set to expire on Wednesday, according to company statements.

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