Wednesday, 6 July 2016

Tullow - convertible bond issue

By Will Forbes

Tullow has announced it plans to raise $300m of convertible debt (maturing 12 July 2021, with an annual coupon of 5.875-6.625% paid semi-annually and convertible at 30-35% premium to VWAP on 6 July 2016). Given this proposed debt raise, it is worth re-examining the London-listed bonds for E&Ps and see how they have performed in recent months.

Yield to maturity of bonds for London-listed E&P vs Brent



Source: Bloomberg. Note Tullow bonds are green, Premier red and Enquest black. The dotted line is Brent

It is clear that the yields are still elevated from 2015 levels, with both Enquest and Premier both implying much higher risk that Tullow. It is notable that the YTM for Tullow has returned to a similar level seen when the oil price was at a similar level (on the way down), while Enquest and Premier are still elevated, similar to yields seen in late 2015 when oil was around $40-50/bbl


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