ANNUAL REPORT 2011 - Connacher Oil and Gas

AR 2011
PG 68
13. Long–Term Debt
As at December 31, 2011 December 31, 2010 January 1, 2010
(Canadian dollar in thousands)
Notes
Second Lien Senior Notes, due August 1, 2019
13.1 $ 559,350 $ – $ –
(US$550 million)
Second Lien Senior Notes, due August 1, 2018
13.1 350,000 – –
(CAD$350 million)
Second Lien Senior Notes, due December 15, 2015
13.2 3,474 584,168 617,294
(US$3.4 million)
First Lien Senior Notes, due July 15, 2014 (US$Nil)
13.2 – 198,920 210,200
Senior Notes, due July 15, 2014 (US$ 100,000)
Convertible Debentures, due June 30, 2012
13.5 98,564 96,548 92,046
(CAD$100 million)
Total debt 1,011,388 879,636 919,540
Unamortized discount and transaction costs (53,286) (32,249) (39,801)
Current portion of long–term debt (102,034) – –
Long–term debt $ 856,068 $ 847,387 $ 879,739
13.1 Second Lien Senior Notes issued in 2011
In May 2011, the company issued US$550 million face value 8.5% Senior Secured Second Lien Notes due August 1, 2019 and CAD$350 million
face value 8.75% Senior Secured Second Lien Notes due August 1, 2018 (the “New Notes”) at par and capitalized transaction costs of $17.6 million
relating to their issuance.
Interest is payable semi–annually on February 1 and August 1 each year the New Notes are outstanding. The New Notes are secured on a second
priority basis by liens on all of the company’s existing and future property, excluding certain pipeline assets in the USA.
Proceeds received from the sale of collateralized assets (excluding oil and gas properties for which no reserves are assigned) are required to be
re–invested in existing exploration and evaluation and petroleum and natural gas properties, to acquire new oil and gas properties or to repay the
Revolving Credit Facility (note 13.4). If such proceeds are not used for these purposes within one year, the company is required to make an offer to
repurchase the New Notes at par to the extent such proceeds exceed $25 million plus any re–invested and repaid amounts. Following an offer to
purchase the New Notes in connection with an asset sale, the company may redeem all or part of the US–dollar denominated New Notes at 108.5
percent and Canadian–dollar denominated New Notes at 108.75 percent with any remaining asset sale proceeds. As of December 31, 2011, all
asset sale proceeds have been re–invested in exploration and evaluation and petroleum and natural gas properties.
Provisions in the indenture allow the company to redeem the New Notes as follows:
• at any time prior to August 1, 2014, the company may redeem up to 35% of the US–dollar denominated New Notes at a price of 108.5 percent
and up to 35% of the Canadian–dollar denominated New Notes at the price of 108.75 percent with proceeds of certain equity offerings of at least
$10 million;
• at any time prior to August 1, 2015, the company may redeem some or all of the New Notes at their principal amount plus a make whole premium
plus applicable interest;
• after August 1, 2015, the US–dollar denominated New Notes may be redeemed at redemption prices ranging from 104.25 percent, reducing to
100 percent on August 1, 2017, and thereafter; and
• after August 1, 2015, the Canadian–dollar denominated New Notes may be redeemed at redemption prices ranging from 104.375 percent
reducing to 100 percent on August 1, 2017 and thereafter.
In the event of a Change of Control of the company, the holders of the New Notes have the right to require the company to purchase the New Notes
at a price of not less than 101 percent of the principal amount to be repurchased.
13.2 First Lien Senior Notes due 2014 and and Second Lien Senior Notes due 2015
In conjunction with the completion of the issuance of the New Notes described in note 13.1, in 2011, the company repurchased US$ 783.5 million of
the face value of the outstanding First Lien Senior Notes due 2014 and Second Lien Senior Notes due 2015 (the “Old Notes”) for cash consideration
of US$ 854.7 million (CAD$ 835.9 million). See note 13.3 for the accounting of costs associated with this transaction.
As of December 31, 2011, the company has fully redeemed its First Lien Senior Notes due 2014. The remaining amount outstanding under Second
Lien Senior Notes due 2015 are classified as current liabilities as the company redeemed these Notes in January 2012 for total cash consideration
of $3.6 million.