Tullow - re-determination and wriggle room
Dear All,
Please refer to our unchanged analysis here.
We are expecting an update from the Company on the RBL redetermination talks this week. Our base-case scenario remains a partial repayment of the 21’s and 22’s in exchange for debt extensions. The level of partial repayment is likely to be lower than market expectations, at c.30% as the Company and the RBL lenders will seek to retain as much cash in order to pursue further CAPEX spending.
But with levels buoyed by oil price rises recently, investors are getting increasingly more comfortable with the possibility that the convertibles will be repaid in full in July. We acknowledge this possibility has increased, but the 25’s only need to increase by 2.5pts in order to achieve the same return on investment. At 17% point discount, we prefer to be in the 25’s over the 21’s. We maintain our long 3% NAV in the 25’s and 2% NAV in the 22’s.
Tomás
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E: tmannion@sarria.co.uk
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