Tullow - comment

In conversation last week with clients the issue of the legality of a proposed dividend for the new Tullow/Capricorn entity was discussed.  For clarity, if leverage is below 1.5x, which is likely if the merger completes, there are limited restrictions on dividends.  Under the Senior 2026 bonds, Tullow can distribute up to Consolidated Cashflow subject to leverage remaining below 1.5x and NPV Coverage Ratio of 2.0x.  The 2025 bonds allow dividend of 18p a share which equates to £260m p.a.

However, we would fully expect the Company will seek to refinance the bonds, especially the Senior Secured Bonds which are callable in May 2023, given the high coupon attached to that bond.