The High Court of Justice of England and Wales has not sanctioned Hurricane Energy’s financial restructuring plan that would have handed control of the company to its bondholders.
The court ruled on Monday it would not sanction the plan, which would have handed control to Hurricane’s bondholders in exchange for forgiving $50 million of debt and extending the maturity date on a further $180 million of bonds due to be repaid in July next year.
The plan was unpopular with shareholders, including activist fund Crystal Amber which is Hurricane’s second-largest investor with a stake of more than 11 per cent. The vote by the shareholders was overwhelmingly against the plan with only 7.66 per cent of votes for and 92.34 per cent against. Bondholders were the complete opposite with a 100 per cent vote in favour of the restructuring plan.
It is worth noting that Hurricane structured its plan this way because it believed that it would not be in a position to repay its $230 million of bonds next year.
The company hoped to open a new frontier in UK waters by producing oil from fractured basement rock formations but was unable to sustain production rates from its Lancaster field.
Recently, Hurricane said that it was looking to shorten the bareboat charter term for Bluewater’s FPSO Aoka Mizu, operating at Lancaster due to significant financial obligations of a full three-year option.
If no agreement is made, Hurricane stated at the time that it would have to wind down its business, cease operations at the Lancaster field, and decommission it.
To try and prevent such an event, the company’s restructuring plan would leave shareholders with just 5 per cent of the company’s equity in exchange for an agreement with bondholders. The hearing on the proposed restructuring was held last week.
According to the judgement by Justice Zacaroli, as reported by the Financial Times, there is “projected to be a shortfall between available cash and the sum required to redeem the bonds at maturity” and there was a “reasonable possibility […] it could be bridged”. He added that there was “no other sufficient ground for urgency” for the bonds to be restructured now.
Hurricane said on Monday that it was considering all options, including an appeal, and warned that bondholders had “certain rights under the terms of the convertible bonds that, if enforced, could result in an acceleration of the convertible bonds and ultimately an insolvent liquidation of the company”.
Hurricane also reminded that Crystal Amber proposed to remove the company’s chair and non-executive directors and replace them with two of its own candidates at an extraordinary general meeting on 5 July and that if this comes to pass and all executive directors are removed from the board, the company’s nominated adviser is likely to resign with immediate effect.
The company claimed that other consequences of such actions include shares being suspended from trading and “if a replacement nominated adviser is not in place within a period of one month, it may result in the shares of the company being delisted from AIM”.
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