NEW YORK, March 12 (LPC) - Trinidad Petroleum Holdings (TPH) is in advanced debt restructuring talks with banks and has secured new loans of up to US$1.4bn based on oil reserves to ease a looming US$850m bond maturity in August, four people familiar with the matter said.
TPH, formerly known as Petrotrin, is tapping the loan market as it faces the uphill task of convincing investors of the merits of a new business plan and smaller workforce.
The Trinidad & Tobago oil producer shut its loss-making refinery in Pointe-a-Pierre, Trinidad, last November because of its inability to generate profit, and would be expected to pay a high interest margin on any new bonds.
“They (TPH) will have to pay a high coupon as the company is reorganizing, so right now, the funding should come from the bank market,” an investor focused on the Caribbean said.
TPH is meeting rating agencies this week, sources said, to outline a plan that prioritizes its more profitable oil and gas exploration and production (E&P) sector over oil refining, which was previously core to company operations.
The company has split into three entities – Heritage Petroleum, which will oversee the E&P business; Paria Fuel Trading Company; and Guaracara Refining Company – alongside holding company TPH.
“It is essentially a new company,” the investor focused on the Caribbean said.
TPH’s decision to scale back refining is due to the island’s lack of domestically produced crude oil and millions of dollars of capital expenditure required to upgrade the ageing asset, the sources said.
The refinery was producing 40,000 barrels per day (bpd) of crude, but operated at a capacity to produce 140,000 bpd, LPC previously reported. Petrotrin was importing 100,000 bpd to make up the difference between production and capacity.
Morgan Stanley, Credit Suisse, Panamanian trade bank Banco LatinoAmericano de Comercio Exterior (Bladex), First Citizens Bank and Ansa Merchants Bank are arranging approximately US$1.2bn-US$1.4bn of loans.
The facilities will finance costs related to closing the refinery, severance pay for the 1,700 direct jobs lost last year and cover the US$850m bullet bond payment in August, the people familiar with the matter said.
Approximately US$400m was lent on a short-term basis, and proceeds were ring-fenced specifically for costs related to closing the refinery and paying off retrenched staff, the sources said.
Morgan Stanley is also understood to be working with TPH on a liability management exercise to repay, or refinance Petrotrin’s US$850m bond due in August, the sources said.
The banks involved and TPH declined, or did not respond, to requests for comment.
TPH is expected to secure this financing with proven oil reserves as collateral, but one source said the government of Trinidad & Tobago, which owns TPH, is reluctant to guarantee the funds as it may impact its own balance sheet and its investment grade credit rating.
Trinidad & Tobago has a sub-investment grade of Ba1 on its sovereign debt from Moody’s Investors Service, but S&P Global Ratings has the island in high-grade territory at BBB+.
“The lenders needed the reserves as a guarantee and I can’t see Petrotrin getting access to this money any other way,” an investment banker in the Caribbean said.
TPH is also understood to have secured working capital credit lines from local Caribbean banks including Republic Bank. These short-term lines, valued between US$178m-US$195m in total, are guaranteed by the government, the sources said.
In another cost-saving measure, TPH has engaged Scotiabank to oversee a sale of its refinery, two of the sources said.
The company has received expressions of interest from a mix of private investors and strategic oil and gas players, the sources said.
“Names being thrown around include Parkland, Glencore and even ExxonMobil,” the investment banker said of potential suitors for the Pointe-a-Pierre refinery.
Canadian petroleum products marketer Parkland Fuel Corp picked up exposure to the Caribbean in October 2018 when it agreed to buy a 75% stake in SOL Investments for roughly US$1.2bn, accessing oil deposits off the coast of Guyana and neighboring islands.
LONG ROAD AHEAD
TPH’s corporate reorganization is its first step back to profitability, but with an US$850m bond payment due in less than six months and approximately US$218.75m outstanding on a note maturing in May 2022, it has to act fast to convince investors of a bankable future.
“ is making progress, cleaning house and has taken some bold steps, but at a slow rate,” a second investment banker said. “But this whole restructuring will put the company in a better position.”
State-backed TPH also has the added benefit of government support as the company is Trinidad & Tobago’s sole distributor of oil products, a key supplier of oil and the island’s major retail gas station network.
TPH, under former name Petrotrin, raised US$850m in bonds in August 2009 with a 9.75% coupon to mature in August 2019 and sold US$750m in 15-year paper in May 2007 with a 6% coupon. Both of these securities have been reallocated under TPH, S&P Global said in a report on 16 January 2019. (Reporting by Aaron Weinman; Editing by Tessa Walsh and Lynn Adler)