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Paulson Buys WesternZagros Convertible Notes
Posted on 19 June 2013. Tags: fundraising, Paulson, WesternZagros
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By John Lee.
Paulson & Co, the hedge fund run by John Paulson (pictured), has bought Cdn$70 million [$68.6 million USD] of WesternZagros 4.00% Convertible Senior Unsecured Notes (“Convertible Notes”).
A portion of the proceeds from the Private Placement have been used to repay the remaining Crest Energy International (“Crest”) debt of US$44.5 million plus accrued interest as per the terms of the loan agreement. The remaining proceeds will be used to fund the Company’s capital and operating activities.
Simon Hatfield, WesternZagros’s Chief Executive Officer commented:
“We are pleased to close this financing with Paulson. The funding provides Convertible Notes with a maturity date beyond that in the Crest loan and additional capital to finance a portion of additional exploration activities or pre-development activities the company pursues in 2014.“
The Convertible Notes have a face value of Cdn$1,000 per note, a coupon of 4 percent, a maturity date of December 31, 2015 and will be convertible into common shares of the Company (“Common Shares”) at the option of the holder at a conversion price of Cdn$1.45 per share (subject to adjustment in certain events), representing a conversion premium of approximately 27 percent to the thirty day average price for the Common Shares.
The Convertible Notes will bear interest from the date of issue payable semi-annually in arrears on June 30 and December 31 of each year, with the first interest payment due on December 31, 2013. The Convertible Notes are not redeemable by the Corporation prior to their expiry, except upon a change of control of WesternZagros where the holder of the notes has not exercised the conversion right.
Under the terms of the Private Placement and the indenture governing the Convertible Notes, the Company has the right to issue, on the same terms, additional Convertible Notes. Pursuant to the Investment Agreement dated March 10, 2013 between the Company and Crest, Crest has certain participation rights to purchase additional Convertible Notes from the Company such that Crest would hold 19.8% of the total Convertible Notes issued by the Company to Paulson, Crest and any other purchasers.
Paulson currently holds 11.1% of the issued and outstanding Common Shares. If Paulson were to exercise its conversion rights under the Convertible Notes, it would hold 18.6% of the total issued and outstanding Common Shares after such conversion. The Convertible Notes were issued pursuant to applicable exemptions from prospectus requirements and as a result the Convertible Notes and any Common Shares issued on conversion are subject to resale restrictions until October 19, 2013 in accordance with applicable Canadian securities laws.
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ADDITIONAL RESEARCH PROVIDED BY TIMMY
Definition of Convertible Notes
Definition
Convertible notes are a mix of debt and equity that start out as normal debt instruments. However, the business that issues the notes offers a feature that allows the investor to turn the note into equity--in other words, the investor can choose to trade the note in and receive shares in the company stock instead. The investor will not receive any payment from the note but has all the benefits of the stock, including ownership in the company.
Options
The ability of the investor to convert his note is known as an option. There are many different qualifications that go along with this option. Typically, an investor can only choose to convert the note within a certain time frame, possibly several months after purchase, or a time frame of several weeks, determined by the company. If the investor does choose to convert the note, he receives only a set number of shares and cannot change this number.
Uses
Companies use convertible notes when they are willing to create or sell more shares in the company, but do not want to sell more shares immediately. Perhaps immediately selling shares would dilute stock too much for stockholders or dilute ownership in the company at a time when critical decisions need to be made. To raise money in equity during these times, companies create convertible notes to delay investment in shares.
Benefits
For the investor, the flexibility of convertible notes is very appealing. If the investor keeps a careful eye on the company and the performance of its stock, he can cash in the note for shares at a time when the share value has increased beyond the value of the note, thus saving money on the share purchase. If the stock value falls, the investor can hold onto the note as a more dependable form of profit.
Considerations
Convertible notes are not always a good deal for investors. For instance, a young company still in danger of failing may produce neither reliable debt nor reliable equity, so the extra prices investors usually have to pay for convertible notes would not be worth the increased risk.
INFO re: WesternZagros
About WesternZagros Resources Ltd.
WesternZagros is an international natural resources company focused on acquiring properties and exploring for, developing and producing crude oil and gas in Iraq. WesternZagros, through its wholly-owned subsidiaries, holds a 40 percent working interest in two Production Sharing Contracts with the Kurdistan Regional Government in the Kurdistan Region of Iraq. WesternZagros's shares trade in Canada on the TSX Venture Exchange under the symbol "WZR".
News Releases
Jun 14, 2013 - 05:07 PM ET
WesternZagros to Present at CWC Iraq Petroleum 2013 Conference
CALGARY, ALBERTA--(Marketwired - June 14, 2013) -
NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES
WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or "the Company") will present at the CWC Group Iraq Petroleum 2013 Conference in London, United Kingdom.
Simon Hatfield, the Company's Chief Executive Officer, will address Kurdistan's Notable Oil and Gas Discoveries: Enhancing Energy Expansion at the three day conference on June 18-20, 2013, which is an international strategic gathering for the Iraq oil and gas industry.
A copy of the presentation will be available on the Company's web site at [You must be registered and logged in to see this link.] on Wednesday, June 19, 2013.
News Releases
Jun 18, 2013 - 07:02 PM ET
WesternZagros Completes Sale of Cdn$70 Million 4.00% Convertible Senior Unsecured Notes
CALGARY, ALBERTA--(Marketwired - June 18, 2013) -
NOT FOR DISTRIBUTION TO THE UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES
WesternZagros Resources Ltd. (TSX VENTURE:WZR) ("WesternZagros" or the "Company") is pleased to announce that it has completed a non-brokered private placement (the "Private Placement") of Cdn$70 million aggregate principal amount of 4.00% Convertible Senior Unsecured Notes ("Convertible Notes") of WesternZagros to investment funds managed by Paulson & Co. Inc. ("Paulson"). A portion of the proceeds from the Private Placement have been used to repay the remaining Crest Energy International ("Crest") debt of US$44.5 million plus accrued interest as per the terms of the loan agreement. The remaining proceeds will be used to fund the Company's capital and operating activities.
Simon Hatfield, WesternZagros's Chief Executive Officer commented: "We are pleased to close this financing with Paulson. The funding provides Convertible Notes with a maturity date beyond that in the Crest loan and additional capital to finance a portion of additional exploration activities or pre-development activities the company pursues in 2014."
The Convertible Notes have a face value of Cdn$1,000 per note, a coupon of 4 percent, a maturity date of December 31, 2015 and will be convertible into common shares of the Company ("Common Shares") at the option of the holder at a conversion price of Cdn$1.45 per share (subject to adjustment in certain events), representing a conversion premium of approximately 27 percent to the thirty day average price for the Common Shares. The Convertible Notes will bear interest from the date of issue payable semi-annually in arrears on June 30 and December 31 of each year, with the first interest payment due on December 31, 2013. The Convertible Notes are not redeemable by the Corporation prior to their expiry, except upon a change of control of WesternZagros where the holder of the notes has not exercised the conversion right.
Under the terms of the Private Placement and the indenture governing the Convertible Notes, the Company has the right to issue, on the same terms, additional Convertible Notes. Pursuant to the Investment Agreement dated March 10, 2013 between the Company and Crest, Crest has certain participation rights to purchase additional Convertible Notes from the Company such that Crest would hold 19.8% of the total Convertible Notes issued by the Company to Paulson, Crest and any other purchasers.
Paulson currently holds 11.1% of the issued and outstanding Common Shares. If Paulson were to exercise its conversion rights under the Convertible Notes, it would hold 18.6% of the total issued and outstanding Common Shares after such conversion. The Convertible Notes were issued pursuant to applicable exemptions from prospectus requirements and as a result the Convertible Notes and any Common Shares issued on conversion are subject to resale restrictions until October 19, 2013 in accordance with applicable Canadian securities laws.
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RESPONSE FROM SHREDD
Whenever you see equity in investment it is referring to residual based instruments luke stock. I know a lot about these notes and they are wisely structured and attractive to investors because it gives the option to move from a lower risk, lower performing note (investment) into a higher risk, higher return note.
This shows us thst from an issuer confidence perspective as well as an underwriting perspective, that these notes will provide enough potential for great gains. Its like knowing you can move your investment into thefast lane whenever you want but right away, you can come on board at a more safe level.
This is a perfect approach for investment into companies involved in iraq....investors need to be able to safely dip their toes in before jumping. Like i had said before, the market will find ways to create attractive methods of investment into all sectors of Iraq, at all levels of risk appetite and at all levels of return.
Things like this show us or proves to us that the msrket has been preparing for this bubble to start growing. It will pick up quick and with iraq hopefully coming out of Chapter VII, we will see more news like this. What will be exciting is watching investment quickly ramp up.
you crack me up Reflection!!!
who wouldn't love to have a sweet ride like this?
