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Sirius Minerals hopes to entice bondholders to convert
Sirius Minerals offered holders of its convertible bonds an incentive to convert their bonds into ordinary shares of the Yorkshire potash developer.
With the $308m of outstanding convertible bonds due to mature towards the end of 2023, Sirius is offering an additional number of shares equivalent to a 1-5% premium to parity, compared to the headline coupon rate of 8.5% per year. CB holders will also receive a mandatory make-whole cash amount.
The company wants to reduce outstanding debt ahead of the Stage 2 financing planned for later in 2018, reduce the overhang on Sirius's shares from potential ad-hoc bond conversions, and to enable the release of some of the cash escrowed to cover bond interest payments.
Sirius said if 85% or more of bonds have been converted, it has right to redeem the remaining bonds at their principal amount plus accrued interest.
Last month, Sirius said it intended is to begin re-engaging with potential lenders for its Stage 2 financing in order to get commitments in place during the second half of 2018.
JP Morgan Cazenove said the offer looked "opportunistic", with the CB spot price of around $145.2 trading in line with its intrinsic value, with a par value of $139.1 plus the make-whole payment of around $6.4.
"As such, SXX is essentially offering 1-5% upfront for a net interest saving of 8.5% pa (i.e. the CB coupon rate). For CB holders, they are giving up an 8.5% pa yield (for the next 5.5yrs) for what is now essentially an equity instrument, given the spot price of ~$0.43/sh vs. strike ~$0.31/sh."
"For SXX, the offer could result in a net interest saving, whilst at the same time, simplifying the capital structure at an attractive price which, at the margin, could be helpful ahead of Stage 2 funding.
"However, in the short term it may result in share price pressure."