Acquisition of Tullow Oil Subject to 101% Change of Control Put in 2022, 2025 Notes; Equity Falls 72% on Downward Production Guidance, CEO Resignation

Relevant Documents:
$650M 6.25% Senior Notes due 2022 OM
$800M 7% Senior Notes due 2025 OM

Tullow Oil’s share price fell 72% to 40 pence today following weaker-than-expected production figures and the resignation of the group’s CEO Paul McDade and exploration director Angus McCoss.

During a call hosted by the Africa-focused energy company this morning, executive chair Dorothy Thompson acknowledged that, as a listed company, the group is always open to offers for the business at an attractive value. With Tullow’s market capitalization having fallen to less than £600 million from about £2.5 billion in early August, the company may be an attractive takeover target for a larger player wishing to gain exposure to its sub-Saharan assets.

Tullow had $3.31 billion of bank and bond debt on June 30, including $1.56 billion of drawings under a $2.45 billion RBL facility, $650 million and $800 million of senior notes due in 2022 and 2025, respectively, and a $300 million convertible bond.

This piece examines the change of control provisions in the company’s bond documents to understand the impact of an acquisition of the group on its creditors.

Both the 2022 notes and the 2025 notes issued by Tullow Oil plc feature change of control protections which, if triggered, will require the issuer to make an offer to redeem the bonds at 101% plus accrued interest.

The provisions can be waived with the consent of at least a majority of noteholders in each issuance. Further, the group’s other debt documents (described in each of the offering memoranda), including the convertible bonds and certain reserve-based lending facilities, also contain change of control protections. The notes do not appear to feature portability provisions.

The notes’ change of control protections are triggered upon either: (i) the sale of all or substantially all of the properties or assets of the company and its restricted subsidiaries, (ii) if one party becomes the beneficial owner (directly or indirectly) of more than 50% of the voting stock of the issuer’s shares, (which are listed on the London Stock Exchange), or (iii) if there is the adoption of a plan relating to the liquidation or dissolution of the issuer.

There are certain provisions within the U.K. Takeover Code which will dictate how potential purchasers of the group can proceed. The mandatory offer provisions require, among other things, that a purchaser holding more than 30% of the voting stock in a listing company make a mandatory offer to purchase the remainder of the shares.

Tullow’s capital structure is below:
 
2022 Notes and 2025 Notes - Change of Control

Both of the notes issued by Tullow Oil plc contain a change of control put at 101% and both prescribe that a “Change of Control” is defined to have occurred if there has been the occurrence of the following:
 

1. The direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the company and its restricted subsidiaries taken as a whole to any ‘‘person’’;
    
2. The adoption of a plan relating to the liquidation or dissolution of the company;
    
3. The consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any ‘‘person’’ becomes the beneficial owner, directly or indirectly, of more than 50% of the voting stock of the company, measured by voting power rather than number of shares.
    

In the current context, this would cover a situation where: (i) more than half of the voting stock of the company becomes owned or controlled by one party, or (ii) all or substantially all of the property and assets of the group are transferred to any person.

Upon the occurrence of a change of control, the issuer will be required to offer to repurchase all outstanding 2022 notes and 2025 notes at a price equal to 101% of their principal, plus accrued and unpaid interest and additional amounts, if any, to the date of repurchase.

There is no portability provision in the notes.

2022 Notes and 2025 Notes - Waiver and Amendment

The terms of both sets of notes can be amended or waived by the consent of a simple majority granted by outstanding noteholders. Although the money terms of the notes require the consent of 90% of noteholders to be amended, provisions that provide for payments required under a change of control are carved out of the money terms.

This means that the change of control provisions under both the 6.25% notes and 7% notes can be waived with the consent of a majority of noteholders in each issuance.

Other Debt

The group has other indebtedness including $300 million in convertible bonds which are issued by Tullow Oil (Jersey) and reserve-backed lending facilities. The OMs relating to the 2022 notes and the 2025 notes state that both the convertible bonds and the facilities have change of control protections of their own. The specific terms of these protections are not set out in the OMs, but it is likely that, if the change of control provisions of the notes are triggered, the provisions relating to the other debt documents will be triggered as well.

UKLA Rules on Takeovers

If a third party seeks to gain control of the group by purchasing a majority of its shares, the transaction will be governed by the Takeover Code. The rules prescribe, among other things, that, where a person or persons acting in concert acquires an interest in a U.K. public company which carries more than 30% of the voting rights, there will be obligations on the person to make a general offer to acquire the remainder of the shares.

The general offer is referred to as a mandatory offer and will also be required when a person or persons acting in concert are interested in shares, which carry between 30% and 50% of the voting rights in the target listed company, and increases their percentage interest.

Tullow’s structure chart is below:
 

-- Shan Qureshi, Rob Sommers