HUR convertible bond (HURCOVNT)

[dspp]

Hello bond peoples,

Can I please pick your brains about the HUR convertible bond, key details are at https://www.hurricaneenergy.com/investo ... tible-bond:

Issue date 24 Jul 2017
Quantum US$230,000,000
TISE ticker HURCOVNT
ISIN XS1641462277
Interest 7.50% per annum, payable quarterly in arrears
Initial conversion price at issue US$0.5200
Maturity 24 July 2022

More info is at https://www.hurricaneenergy.com/investo ... umentation

To be precise that appears to be the only two sets of info that HUR are prepared to release to shareholders. Various extracts or rehashes of those are in various bits of HUR's communications, but nothing additional. This morning I received a response to an earlier email I sent to HUR asking for more information, saying "All of the publicly available information relating to Hurricane’s convertible bond is available on their website, either on the convertible bond page or contained within the shareholder circular." That is a absolute stonewall response as I am sure we all recognise.

The questions I have are:

1. How can shareholders get a copy of the full convertible bond prospectus, or (ideally) the final contractual document.
2. Is there any reason why this full prospectus cannot be posted on the HUR website (as opposed to the press releases, etc, per those links, which are there) ?
3. Is there any reason why the near-real-time bond price cannot be posted on the HUR website ? (and how has it been trading since launch)
4. Personally I'm not too fussed by the embedded derivatives, but some are, so any info on that would be nice.
5. I am however very interested in the provisions regarding change of control, delisting, default & indebtedness. Any assistance or insight would be much appreciated
6. What would be the likely trading strategies of a bondholder if they thought a default event might occur in about 2-years from now ?
7. Do we have any insight into who are the bondholders now, and what are the % holdings.

There is a lot of chitchat over the years on the HUR thread at viewtopic.php?f=16&t=796 which I am sure you are all aware of, but I figured it was worth at least asking the specific questions here.

Regards, dspp

[hiriskpaul]

Just using my phone, but I think what you want should be here:

https://www.hurricaneenergy.com/investo ... umentation

I have had a quick look and suspect this all there is.

[dspp]

Just using my phone, but I think what you want should be here:

https://www.hurricaneenergy.com/investo ... umentation

I have had a quick look and suspect this all there is.

hrp,
It is all that HUR are willing to tell us, that is for sure. Is there any way we can get any insight into those questions or are we wasting our time looking ?
regards,
dspp

[hiriskpaul]

I take it back, the terms and conditions are clearly not on the web site!

Investor relations should be able to provide you with a copy of the prospectus and/or a T&C document. Or if the terms have been published (shareholders really should demand that they are), they should tell you precisely where they have been published.

I don't know how liquid these bonds are, but I would not go near them without seeing the full prospectus/T&Cs. The same is true of the equity.

I note that this is an AIM listed company, so not too surprised to hear IR are being unhelpful!

Edit: Just a thought, have you looked at the latest Articles of Association? Bit of a long shot as these are described as bonds, but there might be something there.

[dspp]

I take it back, the terms and conditions are clearly not on the web site!

Investor relations should be able to provide you with a copy of the prospectus and/or a T&C document. Or if the terms have been published (shareholders really should demand that they are), they should tell you precisely where they have been published.

I don't know how liquid these bonds are, but I would not go near them without seeing the full prospectus/T&Cs. The same is true of the equity.

I note that this is an AIM listed company, so not too surprised to hear IR are being unhelpful!

Edit: Just a thought, have you looked at the latest Articles of Association? Bit of a long shot as these are described as bonds, but there might be something there.

hrp,

Thanks for the thoughts.

HUR are plain refusing to release the Ts & Cs of the bonds. Given my previous interactions with them I can be fairly sure this is not just the office junior being idle.

I am not looking to buy the bonds, but there is - I think - an interaction between equity & bonds in the market and I suspect the detail of the Ts & Cs may be playing a part, hence my interest.

(no there is nothing I can see in the AoA)

regards, dspp

[hiriskpaul]

It is surprising that the full terms were not published at the time of issue, especially as this coincided with a rights issue. How could shareholders assess the value of the rights without knowing what rights were being handed to bondholders? This smells of an institutional stitch up to me.

You are right to be concerned if you a shareholder. What rights do bondholders have in the event of a default? Are their any debt covenants? If so, what are they and how do they work? What triggers changes to the conversion ratio?

Judging from the share price, I guess HUR is not in the best of health. What happens in the future regarding raising finance may depend on who the bondholders are and what rights they have. In this situation it often turns out that a large equity holder is also a large and blocking bondholder. Any restructuring may end up benefitting these institutional holders at the expense of smaller equity holders, including retail holders.

[dspp]

It is surprising that the full terms were not published at the time of issue, especially as this coincided with a rights issue. How could shareholders assess the value of the rights without knowing what rights were being handed to bondholders? This smells of an institutional stitch up to me.

You are right to be concerned if you a shareholder. What rights do bondholders have in the event of a default? Are their any debt covenants? If so, what are they and how do they work? What triggers changes to the conversion ratio?

Judging from the share price, I guess HUR is not in the best of health. What happens in the future regarding raising finance may depend on who the bondholders are and what rights they have. In this situation it often turns out that a large equity holder is also a large and blocking bondholder. Any restructuring may end up benefitting these institutional holders at the expense of smaller equity holders, including retail holders.

hrp,

That's exactly my concern.

regards, dspp

[dealtn]

It is surprising that the full terms were not published at the time of issue, especially as this coincided with a rights issue. How could shareholders assess the value of the rights without knowing what rights were being handed to bondholders? This smells of an institutional stitch up to me.

You are right to be concerned if you a shareholder. What rights do bondholders have in the event of a default? Are their any debt covenants? If so, what are they and how do they work? What triggers changes to the conversion ratio?

Judging from the share price, I guess HUR is not in the best of health. What happens in the future regarding raising finance may depend on who the bondholders are and what rights they have. In this situation it often turns out that a large equity holder is also a large and blocking bondholder. Any restructuring may end up benefitting these institutional holders at the expense of smaller equity holders, including retail holders.

It wasn't a rights issue, so shareholders didn't need to "assess the value of the rights".

The bond issue was a private placement, so I would expect it to be, perhaps solely held, by one of the shareholders.

[dspp]

It is surprising that the full terms were not published at the time of issue, especially as this coincided with a rights issue. How could shareholders assess the value of the rights without knowing what rights were being handed to bondholders? This smells of an institutional stitch up to me.

You are right to be concerned if you a shareholder. What rights do bondholders have in the event of a default? Are their any debt covenants? If so, what are they and how do they work? What triggers changes to the conversion ratio?

Judging from the share price, I guess HUR is not in the best of health. What happens in the future regarding raising finance may depend on who the bondholders are and what rights they have. In this situation it often turns out that a large equity holder is also a large and blocking bondholder. Any restructuring may end up benefitting these institutional holders at the expense of smaller equity holders, including retail holders.

It wasn't a rights issue, so shareholders didn't need to "assess the value of the rights".

The bond issue was a private placement, so I would expect it to be, perhaps solely held, by one of the shareholders.

And what strategy might a shareholder think best if they simultaneously held bonds, and thought there might be a default risk ?

regards, dspp

[hiriskpaul]

It is surprising that the full terms were not published at the time of issue, especially as this coincided with a rights issue. How could shareholders assess the value of the rights without knowing what rights were being handed to bondholders? This smells of an institutional stitch up to me.

You are right to be concerned if you a shareholder. What rights do bondholders have in the event of a default? Are their any debt covenants? If so, what are they and how do they work? What triggers changes to the conversion ratio?

Judging from the share price, I guess HUR is not in the best of health. What happens in the future regarding raising finance may depend on who the bondholders are and what rights they have. In this situation it often turns out that a large equity holder is also a large and blocking bondholder. Any restructuring may end up benefitting these institutional holders at the expense of smaller equity holders, including retail holders.

It wasn't a rights issue, so shareholders didn't need to "assess the value of the rights".

The bond issue was a private placement, so I would expect it to be, perhaps solely held, by one of the shareholders.

Yes you are right, I missed that in my skimming. Even so, I would expect those who took part in the book building to ask what the terms of the convertible bond were, even if they chose not to take part in the bond offer.

There is clearly a missing document here. The Convertible Bond Offering document is far to brief.

[hiriskpaul]

It is surprising that the full terms were not published at the time of issue, especially as this coincided with a rights issue. How could shareholders assess the value of the rights without knowing what rights were being handed to bondholders? This smells of an institutional stitch up to me.

You are right to be concerned if you a shareholder. What rights do bondholders have in the event of a default? Are their any debt covenants? If so, what are they and how do they work? What triggers changes to the conversion ratio?

Judging from the share price, I guess HUR is not in the best of health. What happens in the future regarding raising finance may depend on who the bondholders are and what rights they have. In this situation it often turns out that a large equity holder is also a large and blocking bondholder. Any restructuring may end up benefitting these institutional holders at the expense of smaller equity holders, including retail holders.

It wasn't a rights issue, so shareholders didn't need to "assess the value of the rights".

The bond issue was a private placement, so I would expect it to be, perhaps solely held, by one of the shareholders.

And what strategy might a shareholder think best if they simultaneously held bonds, and thought there might be a default risk ?

regards, dspp

Depends on a lot of factors and how shark like they are, but if they had a blocking position in the bonds, they might dump and short the equity.

[dealtn]

It is surprising that the full terms were not published at the time of issue, especially as this coincided with a rights issue. How could shareholders assess the value of the rights without knowing what rights were being handed to bondholders? This smells of an institutional stitch up to me.

You are right to be concerned if you a shareholder. What rights do bondholders have in the event of a default? Are their any debt covenants? If so, what are they and how do they work? What triggers changes to the conversion ratio?

Judging from the share price, I guess HUR is not in the best of health. What happens in the future regarding raising finance may depend on who the bondholders are and what rights they have. In this situation it often turns out that a large equity holder is also a large and blocking bondholder. Any restructuring may end up benefitting these institutional holders at the expense of smaller equity holders, including retail holders.

It wasn't a rights issue, so shareholders didn't need to "assess the value of the rights".

The bond issue was a private placement, so I would expect it to be, perhaps solely held, by one of the shareholders.

And what strategy might a shareholder think best if they simultaneously held bonds, and thought there might be a default risk ?

regards, dspp

Well you would be in a stronger position to "stake claim" over other equity holders, even those with a potentially larger shareholding. It's not uncommon for investors to take control over (weak) companies through having control or influence over debt, which is higher ranking than equity.

It might also be the case that they get to know in advance of others of potential covenant breaches etc. as in practice the (hypothetical) company might want to know how a debt holder will react in such an instance. I've not seen it with Bond finance, but certainly with bank debt companies are often obliged to provide management information around loan covenants on a regular basis. It is often the case with a bank facility that prior to renewing, or rolling, conversations will commence ahead of maturity. So, similarly, I would expect a (hypothetical) company to be in discussions with its debt holders ahead of a maturity if they weren't confident of being in a position to fully repay, even if such discussions were broadly about the likelihood of refinancing and general terms.

[dealtn]

There is clearly a missing document here. The Convertible Bond Offering document is far to brief.

There is an additional document on the "Fundraising" which is the (Equity) Placing and Convertible Bond Offering on the website. It's Project Harrier on the company website under Investors>Placing Documentation dated 4/7/17. I assume you are solely referring to the 29/6/17 dated ones?

[dspp]

It wasn't a rights issue, so shareholders didn't need to "assess the value of the rights".

The bond issue was a private placement, so I would expect it to be, perhaps solely held, by one of the shareholders.

And what strategy might a shareholder think best if they simultaneously held bonds, and thought there might be a default risk ?

regards, dspp

Well you would be in a stronger position to "stake claim" over other equity holders, even those with a potentially larger shareholding. It's not uncommon for investors to take control over (weak) companies through having control or influence over debt, which is higher ranking than equity.

It might also be the case that they get to know in advance of others of potential covenant breaches etc. as in practice the (hypothetical) company might want to know how a debt holder will react in such an instance. I've not seen it with Bond finance, but certainly with bank debt companies are often obliged to provide management information around loan covenants on a regular basis. It is often the case with a bank facility that prior to renewing, or rolling, conversations will commence ahead of maturity. So, similarly, I would expect a (hypothetical) company to be in discussions with its debt holders ahead of a maturity if they weren't confident of being in a position to fully repay, even if such discussions were broadly about the likelihood of refinancing and general terms.

It wasn't a rights issue, so shareholders didn't need to "assess the value of the rights".

The bond issue was a private placement, so I would expect it to be, perhaps solely held, by one of the shareholders.

And what strategy might a shareholder think best if they simultaneously held bonds, and thought there might be a default risk ?

regards, dspp

Depends on a lot of factors and how shark like they are, but if they had a blocking position in the bonds, they might dump and short the equity.

Thank you both. I suspect there are aspects of both going on.

If I add in that AIM (equity) disclosure rules appear to allow [edit: undisclosed] shorting to (net) neutrality with the equity holders' position, but to not take account of any bond positions, this would tend to explain the price action. If the larger IIs also hold bonds then they can short away on a free ride, comfortable in having the ultimate get-out-of-jail-free ticket in the bonds. And all entirely non-disclosable.

Am I missing anything ?

regards, dspp

ps. There is nothing of substance that I have seen that is different in any of the public documentation.

[dealtn]

... I've not seen it with Bond finance...

To be clear I am not saying it does, or doesn't happen, I simply have no knowledge or expertise in that area. I ran a Government Bond Desk in the City, so on the Trading side. Whilst there was certain overlap with the Corporate Bond Desk (or Credit Desk as they are often called) that wouldn't extend to Debt Origination. That would be a Chinese Wall too far to cross particularly often. Corporate Banking however is a different beast, and there certainly would be continuous dialogue between lender (and security holder) and borrower.

Apologies if that wasn't clear originally.

[drillordrop]

There is clearly a missing document here. The Convertible Bond Offering document is far to brief.

There is an additional document on the "Fundraising" which is the (Equity) Placing and Convertible Bond Offering on the website. It's Project Harrier on the company website under Investors>Placing Documentation dated 4/7/17. I assume you are solely referring to the 29/6/17 dated ones?

I asked a commercial bond data provider if they could find the prospectus and they said it is not available, therefore we have to assume it has not been released anywhere. One thing that might be interesting is if there are similar bonds issued and listed with a public prospectus. We could look at the arranger and track there first. Will have a try over the weekend if I get time.

[dspp]

There is clearly a missing document here. The Convertible Bond Offering document is far to brief.

There is an additional document on the "Fundraising" which is the (Equity) Placing and Convertible Bond Offering on the website. It's Project Harrier on the company website under Investors>Placing Documentation dated 4/7/17. I assume you are solely referring to the 29/6/17 dated ones?

I asked a commercial bond data provider if they could find the prospectus and they said it is not available, therefore we have to assume it has not been released anywhere. One thing that might be interesting is if there are similar bonds issued and listed with a public prospectus. We could look at the arranger and track there first. Will have a try over the weekend if I get time.

That tends to suggest that the bonds are closely held by just a few institutional holders. Let's hope they feel friendly towards PI's, and that their trading strategies align with PI's best interests. Somehow, given the reluctance to disclose the relevant information, and given the price action over the last several months, I think not.

Maybe the price action immediately after CMD will be even more interesting than the CMD itself .......

regards, dspp

[drillordrop]

There is an additional document on the "Fundraising" which is the (Equity) Placing and Convertible Bond Offering on the website. It's Project Harrier on the company website under Investors>Placing Documentation dated 4/7/17. I assume you are solely referring to the 29/6/17 dated ones?

I asked a commercial bond data provider if they could find the prospectus and they said it is not available, therefore we have to assume it has not been released anywhere. One thing that might be interesting is if there are similar bonds issued and listed with a public prospectus. We could look at the arranger and track there first. Will have a try over the weekend if I get time.

That tends to suggest that the bonds are closely held by just a few institutional holders. Let's hope they feel friendly towards PI's, and that their trading strategies align with PI's best interests. Somehow, given the reluctance to disclose the relevant information, and given the price action over the last several months, I think not.

Maybe the price action immediately after CMD will be even more interesting than the CMD itself .......

regards, dspp

Completely agree. News management is what RT has mastered in, at least until the last CMD and the Spirit deal. However his room for manoeuvre is now getting extremely tight, but he may have a one more rabbit, let’s see. The fact that Kerogen are on the board, we don’t know of net long but shorts or the bond, it all looks wrong. I don’t really care if family offices and II’s lose less than 1% of their portfolio on HUR, some pensioners are looking at losing a lot more.

[dspp]

I asked a commercial bond data provider if they could find the prospectus and they said it is not available, therefore we have to assume it has not been released anywhere. One thing that might be interesting is if there are similar bonds issued and listed with a public prospectus. We could look at the arranger and track there first. Will have a try over the weekend if I get time.

That tends to suggest that the bonds are closely held by just a few institutional holders. Let's hope they feel friendly towards PI's, and that their trading strategies align with PI's best interests. Somehow, given the reluctance to disclose the relevant information, and given the price action over the last several months, I think not.

Maybe the price action immediately after CMD will be even more interesting than the CMD itself .......

regards, dspp

Completely agree. News management is what RT has mastered in, at least until the last CMD and the Spirit deal. However his room for manoeuvre is now getting extremely tight, but he may have a one more rabbit, let’s see. The fact that Kerogen are on the board, we don’t know of net long but shorts or the bond, it all looks wrong. I don’t really care if family offices and II’s lose less than 1% of their portfolio on HUR, some pensioners are looking at losing a lot more.

Fully agree. And the penny has seemingly not dropped on some other forums that they need to be watching what is under all all of the hats, not just relying on some prophet and tablets of stone.

Hey ho. Must dash.

regards, dspp

[drillordrop]

Okay, so I've spent some time looking at convertible bonds and it is quite a complex subject when one wants to value a bond, which for equity holders is not that relevant as they are only looking at things from an equity perspective obviously

The HURCONVT bond appears to be pretty much a standard issue bond. The provisions and mechanisms in it (that are publicly available) all look normal. By that I mean the provisions on indebtedness, the embedded derivative, change of control, the right of HUR to convert to cash after a certain date at an agreed calculation of value and the stipulations regarding default.

I read a detailed text on convertibles and pricing them and built spreadsheets to value them. WARNING!! DON"T TRY - unless you want to go to town on Black-Scholes and derivatives, calculating the PV of the bond component, the PV of the conversion option, expected stock volatility, credit spreads, annualised standard deviation of stock price etc. & etc.

However, there is an article discussing convertibles at a basic level at this link: https://www.gabelli.com/funds/insights/ ... 74e930eb64

I have extracted one quotes from it below for those too lazy to even bother with the link ...

Distressed
When a company threatens to go into default or actually goes bankrupt, convertibles, which are senior to the common stock in the company’s capital structure, may retain significant value. Professional investors who specialize in distressed companies have often found value in these convertible issues worth investigation. On the convertible graph (Graph 1) these issues would fit on lower left near the spot marked “Distressed”

The unshot of all this is that if Lancaster is a dud and HUR goes belly-up then the bond holders will get the company but as the underlying value of the business disappears they will only have things of tangible value left to sell of which there doesn't seem to be much almost everything is leased.

So.... it seems to me that the bond is not a major risk to equity holders, indeed the bond holders seem pretty much as exposed as equity unless they managed to put a short position on to cover. I realise some posters have already all said this in summary, so apologies if I took a very long-winded and mentally arduous way to join you - but at least I now understand convertibles very well indeed!

Happy to hear others comments where I may have missed something.