Geo Energy Resources Limited
Provision | Analysis |
Structure and subordination | The notes are issued by Singapore incorporated Geo Coal International Pte. Ltd. The notes benefit from a parent guarantee provided by Geo Energy Resources Limited, along with subsidiary guarantees from Geo Energy’s subsidiaries. However, PT Geo Online Indonesia and PT Deli Global OASE - along with any other unrestricted subsidiaries - will not provide subsidiary guarantees. Future restricted subsidiaries will provide subsidiary guarantees. However, entities that are acquired by Geo Energy in the future, which are less than 80% owned, may be restricted subsidiaries but will not be required to become guarantors of the notes. Guarantees may also be released upon Geo Energy divesting 20% or more of the capital stock of such subsidiary guarantor. The notes do not benefit from a security package. Claims of the guarantor’s secured creditors will have priority with respect to their security over the claims of unsecured creditors, which includes noteholders, to the extent of the value of the assets securing such indebtedness. The notes and guarantees will be effectively subordinated to any secured indebtedness and other secured obligations of the guarantors to the extent of the value of the assets securing such indebtedness or other obligations. Noteholders will participate ratably with all holders of unsecured indebtedness of the guarantors. Payment obligations under the notes and the guarantees will be effectively subordinated to all existing and future obligations of Geo Energy’s non-guarantor subsidiaries (including obligations of non-guarantor subsidiaries under guarantees issued in connection with Geo Energy’s business), and all claims of creditors of non-guarantor subsidiaries will have priority as to the assets of such entities over Geo Energy’s claims and those of its creditors, including noteholders. As of June. 30, 2019, Geo Energy had $300.2 million of indebtedness outstanding, which primarily consists of indebtedness under its $300 million 8% senior notes due 2022. |
Limitation on indebtedness | The covenant restricts Geo Coal and Geo Energy and any restricted subsidiary from incurring indebtedness (including acquired indebtedness) but provides that those parties, and any subsidiary guarantor or finance subsidiary may incur indebtedness (including acquired indebtedness) if after giving effect to the incurrence of indebtedness, no default has occurred and is continuing and:
Note that interest on any subordinated shareholder loan will be excluded from the calculation of consolidated interest expense and the definition of consolidated interest expense is a significant component of consolidated EBITDA and the FCCR calculation. The carve outs described above forms part of the FCCR ratio calculation and may provide an ability to increase the headroom for ratio debt incurrence. In addition to being able to incur standard ratio debt - if the above ratios are complied with - permitted consolidated priority indebtedness can also be incurred which is capped at 15% of total assets ($83.2 million based on the June 2019 balance sheet) of Geo Energy and its restricted subsidiaries. Reorg estimates the FCCR to be around 1.4x and the Consolidated Debt to Consolidated EBITDA Ratio to be around 8.2x, before giving any pro-forma effects to any prospective acquisition. Geo Energy’s leverage profile on a trailing 12-month basis as of Jun. 30, 2019 does not appear to allow it to incur ratio debt on a standalone basis. For more information, please refer to Geo Energy’s leverage profile in Reorg’s Tear Sheet. In addition to being able to incur ratio indebtedness if the above provisions are complied with, in some circumstances Geo Coal, Geo Energy, the subsidiary guarantors and the restricted subsidiaries, can access certain permitted indebtedness carve-outs which include permitted indebtedness baskets for, amongst other things:
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Limitation on restricted indebtedness | Geo Energy, Geo Coal and the restricted subsidiaries are generally not permitted to declare or pay dividends, purchase, redeem or acquire capital stock, retire, redeem or repay any debt subordinated to the notes or any guarantees or make investments unless they can access the restricted payments builder basket or are permitted by carve-outs to the restricted payment covenant as a ‘Permitted Investment’. The builder basket is built up by 50% of consolidated net income (subject to other add ons) and is accessible in the absence of default plus Geo Energy being able to incur at least $1 of additional debt under the ratio debt test. Irrespective of having being able to make payments via the restricted payments builder basket, the covenant allows for restricted payments by Geo Energy or a restricted subsidiary carved out from the restriction which along with customary items, includes payments for/under:
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Asset sale restrictions | Restriction on Geo Energy, Geo Coal and its restricted subsidiaries to consummate any asset sale unless the consideration received is at fair market value, at least 75% is in cash or temporary cash investments or replacement assets, and no default is occurring or would occur with the asset sale. A fairness opinion is required for any asset sale which involves receiving a replacement asset in excess of $5 million. Within 360 days of receiving the proceeds from an asset sale, Geo Energy or a restricted subsidiary may apply the net cash proceeds to:
If any excess proceeds from an asset sale are not applied as above, on 361st day after an asset sale, there is a sweeper provision for Geo Energy or Geo Coal to use the proceeds to make an offer to purchase the notes and other senior indebtedness (with similar asset sale provisions) of Geo Energy or the restricted subsidiaries at par plus accrued unpaid interest. Such an offer must be made within 10 calendar days, when the excess proceeds total $10 million. |
Additional notes | Yes. Geo Coal can issue additional notes having the same terms and conditions as the notes and will be consolidated to form a single class, including benefiting from the guarantees. |
Mandatory Offer to Purchase | Unless:
All reserves amounts are to have been measured as of a date no earlier than six months prior to the dates set out above in accordance with the JORC Code, detailed in a report and certified by SMG Consultant or another person appointment by Geo Energy. The reserve amounts will be reduced if PT Sungai Danau Jaya (SDJ), PT Tanah Bumbu Resources (TBR) or PT Bumi Enggang Khatulistiwa, or a qualified coal mine are not wholly owned by restricted subsidiaries. The reduction would be based on the amount of the reserves attributable to the coal mine to which such restricted subsidiary holds an IUP, as of the issue date of the notes, multiplied by the percentage ownership interest of such restricted subsidiary not owned by Geo Energy or any wholly owned restricted subsidiary. Following Geo’s announcement of the proposed acquisition of Titan Global Energy, the 80 million tonne condition described above is likely to be satisfied if the IUPs associated with SDJ and TBR are subsequently extended beyond Oct. 4, 2025. |
Equity claw | Optional redemption for up to 35% of the notes at 108% prior to Oct. 4, 2020. |
Optional Redemptions | 104% in 2020 and 102% in 2021. |
Change of control | Yes. 101%. Triggers include if Mr. Charles Antonny Melati and Mr. Huang She Thong (or if their family members/affiliates) collectively are no longer the beneficial owners of less than 35% of the voting stock of Geo Energy. Reorg estimates that the aforementioned shareholders collectively control 38.69% of Geo Energy based on recent disclosures, including the company’s 2018 annual report. |
Grace Period For EODs | There is a 30 day (consecutive) grace period for non-payment of coupon under the notes. |
Cross default | Triggered with respect to indebtedness of Geo Energy or any restricted subsidiary, having an outstanding principal amount of $5 million or more in the aggregate for all such indebtedness of such an entity, or a shareholder loan, and there occurs:
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Acceleration | Holders of 25% of notes can accelerate (written notice). Automatic acceleration in relation to bankruptcy proceedings or appointment of receiver/liquidator (voluntary or involuntary) in respect of Geo Energy or a significant subsidiary. Holders of a majority of the notes may waive a default and rescind or annul acceleration action, other than non-payment of principal or interest on the notes which have become due, if the event(s) of default have been cured and the recission doesn’t conflict with a judgment or decree of a court. |
Modifications | The consent thresholds to amend the notes and guarantees are:
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Provision of information | Geo Energy, if listed, will provide the trustee with financial reports or other reports upon request but no later than within 10 days after they have been filed on the SGX-ST, or other applicable exchange. If Geo Energy is not listed then the company will provide the trustee with the following information: Audited financial statements as of the end of the two most recent fiscal years of Geo Energy, including a statement of income, and cash flow statement, and an operating and financial review of the audited financial statement as soon as available and in any event within 120 calendar days after the end of each fiscal year. Quarterly unaudited financial statements of Geo Energy as soon as available but within 45 calendar days of the end of the fiscal quarter. Accompanied by ‘fairness certificate’ provided by Geo Energy. In addition Geo Energy will provide to the trustee, within 120 days after the close of each fiscal year, an officer’s certificate stating the FCCR and Consolidated Debt to EBITDA ratios have been complied with for the four most recent quarters (including an external auditors certificate if available) and that Geo Energy and the restricted subsidiaries have fulfilled their obligations under the indenture, or if there has been a default of the obligations or event of default, within 14 days after any written request from the trustee or 10 days after Geo Energy becomes aware, or should have reasonably become aware, of the occurrence of a default or event of default, an officer’s certificate setting forth the details of the default or event of default, and the action which Geo Energy proposes to take. |
Governing law | Notes, the indenture and guarantees are governed by New York law. |
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