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Tuesday 15 July 2014 by Legacy

Antares Energy receives a US$300m letter of intent for the purchase of all Permian Basin assets

Summary

Antares is an Australian Securities Exchange (ASX:AZZ) listed company focused on oil and gas exploration, production and development in the Permian Basin of West Texas, United States of America
Currently Antares has three core projects in the prolific Permian Basin, being Southern Star, Northern Star and Big Star. Antares' business objective is to grow reserves, production and revenue, through the development of these three core Permian Basin projects
On 2 July, Antares successfully raised A$19.5m in convertible notes to fund the further development of its three Permian Basin projects as well as any value-accretive opportunities. FIIG Securities acted as Sole Manager in relation to this issue of Antares Energy convertible notes
The convertible notes were issued at a $2.00 face value, pay a 10% coupon payable quarterly in arrears and are scheduled to mature in 2023. These newly issued convertible notes are initially listed on the ASX under the code AZZGA and following the next interest payment on the convertible notes due 31 July 2014, the ASX code will change from AZZGA to AZZG.
On 7 July, Antares announced to the ASX that they received a confidential, non-binding letter of intent for the amount of US$300m for the purchase of all their Permian Basin assets
Since the announcement, the share price of Antares has increased by 21%, from $0.535 at the market close of 4 July to $0.65 at the market close of 14 July
The AZZGA notes have also experienced a corresponding increase in value. As at the market close of 14 July, the newly issued notes were trading at a last sale price of $2.14, or a 7% premium to issue price
Being a hybrid instrument, convertible notes typically carry a different risk and return profile to a conventional fixed income investment. This has been borne out following the increase in the price of the convertible notes associated with Antares’ recent share price increase
In addition, a US-based activist fund, Lone Star, has recently acquired a 6% stake in Antares’ shares and has been agitating to spill the existing board of Antares. Antares has argued that if successful this would provide Lone Star with effective control of the company as in effect their nominees would hold all board positions. A general meeting has been proposed for the 22 July to vote on the proposed Lone Star resolutions
Noteholders can adopt one or a combination of the following options in relation to their investment in the Antares Convertible Notes:
- Noteholders can also continue to hold the notes, with the next quarterly interest payment occurring on the 31 July
- The notes can be sold directly via the ASX, trading under the code AZZGA until the 31 July, after which they revert to the code AZZG, which is the ASX code used for the previously issued convertible notes
- The notes can also be converted at any time into Antares ordinary shares at a ratio of 1 note to 3 ordinary shares. The existing notes are publicly listed on the ASX (ASX code: AZZG) with limited trading volumes in the secondary market to date. Based on a face value of $2.00 per convertible note, and a 1:3 conversion ratio, the notes effectively include an implied call option at a strike price of $0.67. If AZZ’s shares are trading at more than $0.67, note holders who initially invested in the notes could potentially achieve capital gains by converting the notes into ordinary shares and subsequently selling.
Given the recent market announcement from Antares, associated media attention as well as the upcoming general meeting on 22 July, it is recommended Antares’ noteholders continue to monitor the situation with regards to Antares and Lone Star and current corporate actions relating to Antares in general. Investors are referred to the ASX website in relation to company information and announcements on AZZ. In addition, financial information and stock analyst reports are available Antares' website (www.antaresenergy.com)

Please contact your FIIG dealer for a copy of the FIIG research report in relation to the Antares Energy Convertible Notes.

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