By Simon Kent.
WesternZagros Resources has announced that an agreement has been reached with its major shareholder, Crest Energy International to defer the latest first drawdown notice date under the first tranche of its US$200 million unsecured credit facility from the original date of January 1, 2016 to May 1, 2016.
The Company felt it was prudent to increase the flexibility of its debt facility in order to reduce commitment fees and interest costs to the Company as it does not expect to need to access any loan funds until the second half of 2016. In addition, the Company is undertaking a review of all financing alternatives available to it to better align with currently anticipated capital needs.
Simon Hatfield, WesternZagros's Chief Executive Officer (pictured) explained the reasoning behind the review:
"To ensure the long-term sustainability of our assets, deferring the timing of the first tranche of the credit facility allows us to improve our capital flexibility and significantly reduce financing costs for the development plans on Kurdamir and Garmian.
"We are also exploring alternative financing alternatives to allow for optimum alignment of capital availability with our development plan needs in order to provide the best available outcome for the Company and all its stakeholders.
"Cost management continues to be an ongoing focus. As part of this exercise the Company has also decided to not award any discretionary cash bonuses for 2015 and to not award any base salary increases for 2016."
The Loan Agreement between the Company and Crest dated August 14, 2014 (the "Loan Agreement") consists of two tranches for a total borrowing capacity of USD $200 million, with the first tranche having a loan limit of USD $150 million and the second tranche having a loan limit of USD $50 million.
Pursuant to the terms of the Loan Agreement, a drawdown notice in respect of the first tranche was originally required to be given by the Company by January 1, 2016 and a drawdown notice in respect of the second tranche is required to be given by the Company by June 1, 2016, failing which the availability of the applicable tranches will expire.
Once an initial draw has been made under any tranche, the drawn amounts on the first and second tranches accrue interest at 12 and 14 percent per annum, respectively, and the undrawn amount under such tranches accrues a commitment fee of 8 percent per annum.
The agreement reached with Crest allows the Company to defer the latest first drawdown notice date under Tranche 1 from January 1, 2016 to May 1, 2016. This would have the effect of reducing the commitment fee and better align the terms of the credit facility with the expected need for capital. All other terms under Tranche 1 and Tranche 2, including the maturity dates, which are October 1, 2017 and June 1, 2018, respectively, will remain unchanged.
The Company has sufficient funds to pay the principal and accrued interest on the outstanding CDN$100 million principal amount of 4 percent convertible notes which are due on December 31, 2015 and would expect to end 2015 with working capital in the range of US$40-45 million after making this payment.
In addition, the Company is undertaking a review of all financing alternatives available to the Company. It is contemplated that the review will include, but is not limited to, the completion of an alternative debt financing or equity financing, or the farm down or sale of some of the assets of the Company. In connection with this review, the Company has retained TD Securities to act as its financial advisor.
It is the Company's intention not to disclose developments with respect to the review process until the Board of Directors has approved a specific transaction, action plan or otherwise determines that disclosure is necessary or appropriate.
(Source: Western Zagros)