The Evil Diaries: Quindell Continues to Muddle Me

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Evil discusses Ithaca Energy, Afren and Quindell…

My correspondent in the matter of Ithaca (IAE) opines:

”- Ithaca’s $300m 2019 note was given a Caa1 rating by Moody’s in December (i.e. very high credit risk), and this used a base case of an initial production date for Ithaca’s Greater Stella Area in Q3 2015, which is now delayed until Q2 2016 . Quote: “The successful start up is critical to Ithaca’s ability to ramp up production, reduce unit costs and provide cash flow to reduce debt and fund further development.”

– Ithaca’s Reserve Based Loan matures in June 2017, with $476 million drawn as of Sep 2014. The amount made available here is due to be reviewed in April 2015, and under the current agreement it is supposed to start being paid down at the end of 2015.

– the RBL has certain covenants, which, if any of them are breached, may result in accelerated repayment.

*A corporate cashflow projection showing total sources of funds must exceed total forecast uses of funds for the following 12 months.

*The ratio of the net present value of cashflows secured under the RBL for the economic life of the fields to the amount drawn under the facility must not fall below 1.15:1

*The ratio of the net present value of cashflows secured under the RBL for the life of the debt facility to the amount drawn under the facility must not fall below 1.05:1.

– the undrawn $100 million Corporate Facility, if they need to use it, has strict earnings-related covenants (you’ll find them in the financial statements).

– A P/E is being talked about on the message boards but it is obviously irrelevant. Net financial debt is currently c. $830m (i.e. £540m), so the enterprise value is now £690 million (based on the current share price of 46p). The balance sheet also includes decommissioning liabilities of $220 million.

Ithaca is dependent on the review of the RBL in April and may require an extension of the associated prepayment schedule and/or the relaxation of various debt covenants. Moody’s are likely to review the credit rating for the 2019 notes, which currently yield 14% and were on negative outlook prior to the GSA delay.

Ithaca has a successful hedging programme of 6.3k barrels/day at $102 through to mid-2016, but is exposed to critical factors which are now beyond its control. Even in the best case scenario, the GSA delay means that financial debt will remain elevated for an extended period of time. On that basis, shorting the equity remains attractive.”

Elsewhere on the oils pitch, I presumed that Afren (AFR), 9p, would have been suspended by now in the light of no news on its refinancing. However, 4.30 p.m. awaits and what seems inevitable may yet come to pass.

Finally, Quindell (QPP) continues to muddle me. There is still no bid from Slater and Gordon for part of the business or the whole shebang. I do not know how to play it.


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