Enq 23 �pik Tog Discussion Threads

[steve73] 13/2/2021 04:51

cat, My experience is that the "qualifying holding date" when PikK is the last day of the previous month, different from the ex-coupon date (which I though was CoB on the 14th for payment on the 15th)

[catsick] 13/2/2021 03:50

Have these gone ex coupon ? Price did not seem to move at all ??

[grahamg8] 04/2/2021 19:57

Yes the maturity date is now 15 October 2023.

Plenty of comment on the ENQ board but I haven't seen any mention of the reason why the bonds have done so well (and which I think will be positive for the shares in the long run). In my opinion the reference to refinancing existing bank debt is really important. The Bressay deal was positive for me because spending a chunk of cash while burdened by huge debts could only make sense if there was a good deal of confidence that the loans could be refinanced on reasonable terms.

Golden Eagle goes further by specifically mentioning refinancing. This time the market has responded strongly. Once your bank debt has been extended then paying off the bonds on time and in full becomes so much easier.

Plenty more detail will be forthcoming as this proposal has to be sold to shareholders.

[damp seaweed] 04/2/2021 09:59

I’ve had a modest number of these for ages. I had left them in the bottom drawer. But I’ve just sold my PMO1 because I couldn’t figure out if the merger is good for me or not. Anyway it got me to look at these bad boys.
I noticed in this thread that there was a mention of a maturity extension ? Has this happened?

[catsick] 04/2/2021 08:06

The bonds seem to like the update, decent debt pay down and equity raise will bolster the security behind these

[steve73] 04/2/2021 05:28

By their nature Bonds are pretty boring (usually) - you don't get the wild swings you get with equity, and this tends to keep the idiot rampers/traders at bay... so more chance of an intelligent & civil debate..

I hadn't considered using cash dividends to buy more bonds (which would probably be at close to par), rather than selling the Pik at discount to give equivalent cash. For my small holding dealing costs would wipe out any benefit.

I did have plenty of these from c. 60-70p 2016 which I sold close to 95 during 2018... But unfortunately used it to buy the equity & rights at a much higher price than present. (If you recall equity got trashed just after the '18 Rights Issue)

The few I now hold were bought during '19, with a few more added in April '20; these are held in a "managed" portfolio, where I needed a minimum % of fixed interest. These offered a better return than most corporate bonds or treasuries... LOL.

TBH, it wouldn't bother me if the term got extended again, since it does provide a better interest than the fixed "interest" alternatives, even if it is as PIK..

[grahamg8] 03/2/2021 18:38

Nice to have a civil conversation with someone for a change.

My take is that if the payment is in cash you can then buy extra bonds and look forward to the future gain, or keep the cash. If you get PIK you can of course do the reverse, sell and turn the dividend into cash.

The difference is all pretty marginal when the bid/offer spread and broker fees are taken into account. I've certainly not sold any PIK bonds for that reason, and also I am bullish on the survival of ENQ and an eventual 100% return. Time may prove me expensively wrong.

[steve73] 29/1/2021 08:19

Hi Graham.. Sorry you are wrong.. pik (eventually) gives a higher return...

The reason is that every 6 months you get an additional 3.5%.. So assuming you don't sell any, then after 1 year you'll get an additional 3.5% of 103.5% of your original holding. So by maturity, in oct '23 there will have been 6 more payments so with pik, your holding will be worth 1.035^6 or 1.27x your initial holding.

Cash payment will simply give 0.035 x 6 = 0.21 per original holding, but of course you will be receiving the cash every 6 months.

Of course, if you want cash every 6 months, then with pik you would need to sell the extra bonds, and you would only receive a proportion of the "par".

So it does depend whether you want the regular cash, or whether you are looking at the growth until par.

Certainly, I agree that from ENQ's standpoint, pik simply defers the debt repayment, so there are short-term benefits for them, with a longer term penalty. I don't see the O/P getting to over $65 in the next few years due to Covid, but I'm actually surprised to see it as high as it is..

[grahamg8] 29/1/2021 07:51

Hi Steve. This is market forces at work, risk v reward. Massive debt and low oil price brings a high risk of default. Hence 55p in November. A higher oil price and debt down a little and the risk drops and the price goes up.

I think you will find that cash payments rather than PIK will give a higher overall return not lower. Let's assume 100 bonds at 79p. With PIK you get 100 x 0.035 = 3.5 new bonds which are worth 79p each ie you get £2.765 every six months. With cash you would receive 100 x 0.035 = £3.50 as the coupon return is based on the nominal value 100p rather than the market price of 79p.

This sounds like win-win as a cash payment is more likely when the oil price is higher and hence the risk is lower. Lower risk AND a better payout looks good to me. But there is a downside because PIK keeps cash inside the business, whereas paying our interest as cash pushes the debt back up - counterbalanced by better cash flow because the oil price is higher.

I did bravely/foolishly/opportunistically buy in extra at 60p in September but couldn't bring myself to add any more since as my holding was as large as I could reasonably justify.

[steve73] 26/1/2021 02:31

Thanks Graham.. I was planning to check but got sidetracked along the way.. LOL.

I've just rechecked the Gross YTM.. Anyone buying before the end of this month (which I think is the cut-off date for the upcoming pik), at the recently quoted price of 79p, and held to maturity will eventually get just over 18% pa over that period. If Enquest start paying the interest in cash it will drop a little (since some of the cash is paid earlier).

Pity I didn't add any in Nov at 55p - would have been over 30% pa YTM...

[grahamg8] 25/1/2021 17:44

Steve you don't need to guess. Just read the RNS on the LSE:ENQ board dated 15/10/20 ''Maturity Date Extension''. The coupon was originally 5.5% increased in November 2016 to 7% in exchange for allowing PIK depending on the oil price and an extension from February 2022 to October 2022 and option to increase to October 2023 now taken.

Certainly there could be a further extension but what would bond holders get back in return in order to accept a further delay in repayment? I don't see the coupon being increased any further so my solution would be for bond holders to be given a scrip share or bond issue. Any scrip bonds need not be on the same terms as the existing ones.

[steve73] 24/1/2021 06:06

So, another 3.5% of additional bonds to be added shortly, and I'm guessing the maturity was extended to 15/10/2023 as per the following from ENQ's website..

quote>>
In 2016, both the retail bond and the high yield bond were amended pursuant to a scheme of arrangement whereby all existing notes were exchanged for new notes.

The interest will only be payable in cash if the ‘Cash Payment Condition’ is satisfied, being average of the Daily Brent Oil Prices during the period of six calendar months immediately preceding the ‘Cash Payment Determination Date’ is equal to or above $65/bbl.

The cash Payment Condition Determination Date is the date falling one calendar month prior to the relevant interest payment date.

If the ‘Cash Payment Condition’ is not satisfied, interest will not be paid in cash but instead be capitalised and satisfied through the issue of additional notes.

Under the existing terms of the Retail Notes, the maturity date is automatically extended to 15 October 2023 (from 15 April 2022) if EnQuest's senior credit facility is not repaid or refinanced in full by 15 October 2020. Similarly, under the existing terms of the High Yield Notes, the maturity date is automatically extended to 15 October 2023 (from 15 April 2022) if the senior credit facility is not repaid or refinanced by 30 October 2020.

>>end quote

At a buy price of 79p the capital appreciation of over 25% represents an overall yield of around 15% pa. if held to maturity.

[steve73] 30/9/2020 09:43

TBH, I'm expecting the maturity to be deferred by a couple of years... but as long as they don't take a hair-cut or default then yes, they represent a good return from here.

[spangle93] 30/9/2020 09:22

Ha ha, I wish I'd had more then too.

Yes, H-L is not the company it was when Hargreaves was running it. The quotes on small caps are getting less competitive, if you can get them at all - I watched CHF sail away when others were buying and I couldn't get a quote online - and the charges are a long way from industry leading. The problem in the industry are the exit fees, which penalise anyone moving platform.

But at 55p to the £1, my intent is to hold for maturity

[steve73] 30/9/2020 07:36

OK - thanks Spangle... I questioned it since my PIK shares had been credited to my account on the 19th of AUGUST.

Maybe H-L are just a bit slow, although it makes little difference unless you want to sell your entire holding just after a distribution...

[spangle93] 30/9/2020 07:30

I assumed it was the regular scheme, since oil price has been well below the threshold for cash distribution.

The wording is different to Feb 2020 PIK
"The Company has implemented a Coupon Payment in Kind, under the terms of which Holders at the close of business on 14 February 2020 have received 0.035 of an additional Enquest plc 7% Note 2022 Unit for every 1 Unit previously held."

But the distribution is the same.

I can't easily go back much further because I sold in one account and bought in this one.

[steve73] 30/9/2020 01:20

Spangle - is that on top of the regular pik..?

[spangle93] 29/9/2020 13:21

Message from H-L today

"The Company has implemented a Bonus Issue of Notes. Under the terms of the Bonus Issue, Shareholders at the close of business on 16 August 2020 have received 0.035 additional Notes for each Notes held."


New notes are in my account

[hpcg] 29/5/2020 11:53

Oil price volatility
A further decline in oil and gas prices from those assumed
in the Base and Downside cases would adversely affect
the Group’s operations and financial condition. In partial
mitigation to oil price volatility, the Group has hedged
approximately 2.9 MMbbls at an average floor price of
around $65/bbl in the first quarter of 2020. In accordance
with the Sculptor Capital facility agreement, the Group has
a further approximately 1.1 MMbbls hedged across 2020
with an average floor price of around $52/bbl. In line with
Group policy, EnQuest will continue to pursue hedging at
the appropriate time and price.
Access to funding
The Group’s credit facility contains certain covenants (based
on the ratio of indebtedness incurred under the term loan
and revolving credit facility to EBITDA, finance charges to
EBITDA, and a requirement for liquidity testing). Prolonged
low oil prices, cost increases and production delays or
outages could further threaten the Group’s liquidity and/or
ability to comply with relevant covenants. In assessing
viability the Directors recognise the material uncertainty
identified in the going concern period (see above) and the
conclusion that a waiver for any potential covenant breach
would be forthcoming.

Their downside case was a 10% drop in oil prices. Unlike their hedges going into this period they have just hedged 4 million barrels at $33. I expect oil prices to remain mid-thirties to the end of the year. There is ample production than can simply be turned back on, and storage is brimming.

I don't know what the covenants are, or when they are tested (dates are in previous communications, but I have no interest either way so not spending time to find). I could see a mid-year being waived, but not for a second time at the end of year.

[steelwatch] 29/5/2020 11:42

hpcg - regarding "heavy oil," you seem a little out of touch:

[lonrho] 29/5/2020 10:59

Hpcg

Would you be kind enough to supply your workings on how the covenants will be broken and how all unsecured will be wiped out and what oil price per year upto 2023 you are assuming in your calculations.

[hpcg] 29/5/2020 08:25

No, don't think so. They need $65-75 to payback. I would think both equity and unsecured wiped out. It's the covenants on the bank facilities that will cause the fail when the hedging strip runs out. I'm even less positive on the heavy oil. This was excellent when the US was flooded with sweet light but at last shale has taken the brunt of volume reductions. I honestly see medium crudes make up more of the mix, and where heavy components are needed by US refineries they come from Canada.

[11_percent] 28/5/2020 15:24

Hi guys, price of oil going up......looks like ENQ will survive.....and these get redeemed.

[11_percent] 13/3/2020 11:31

Keep putting them off.....go bust....and let the Gov clean up the mess.

[ppceh] 11/3/2020 19:58

Abandonment liabilities are my principal concern