Tullow - Roadshow continues on jumbo deal

All,

Please refer to our unchanged analysis here.

Give we are significantly long the entire capital structure except for the 21s, we were pleased to see the announcement yesterday morning. Tullow are refinancing the RBL and 2021 & 2022 bonds with a $1.8bn Senior Secured Notes offering.  In January we took a long position in the 2022 and 2025 bonds at 85% and 70% respectively arguing the upside was greater in the 2025 over the shorter-dated 2021 convertibles.  Then we added shares in March.

Even with the convertibles maturing at par in July, we fully expect the 2025 notes to rally up into the 90’s on the back of the refinancing.  Despite the new debt being senior to the existing 2025, the removal of the upcoming maturities, no more RBL redetermination risk and limited debt amortisation prior to 2025 ($100m per annum) means Tullow can focus on operational issues including new wells with reportedly high IRRs.  

There is a concern in relation to the size of the deal, but we are confident that the deal will progress, with pricing likely to be 9%.  This should mean the 2025s will trade 100-150bps wide of the Senior Secured Notes.  The added bonus for our overall position is the all-debt refinancing, with no equity offering, helping our 4% long equity position.  

We remain long Tullow at every level of the cap structure except the imminently maturing 21s.

Tomás

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