April 14, 2009 / 2:49 PM / 9 years ago

UPDATE 2-Iteration to renew credit facility; raise C$50 mln

* To sell 39.1 mln shares for gross proceeds of C$50 mln

* Expects to finalize C$260 million credit facility

* One brokerage downgrades stock, another cuts price target (Adds analyst comments, details; updates share movement)

April 14 (Reuters) - Canada’s Iteration Energy Ltd (ITX.TO), said it is negotiating renewal of its credit facilities and plans to raise C$50 million by issuing shares, prompting analysts to temper their views on the stock.

“While the equity offering is being done at a substantial discount to the company’s net asset value per share, it was relatively necessary in the context of the dismal balance sheet position,” Genuity Capital Markets analyst Brian Kristjansen wrote in a note to clients.

The oil and gas producer plans to sell 39.1 million common shares to a syndicate of underwriters, led by Cormark Securities Inc, for C$1.28 per share, a discount of about 9 percent to the stock’s Monday closing price of C$1.40.

Iteration, which has C$285 million ($235.1 million) debt before its proposed equity financing, is in negotiations with a syndicate of four major Canadian chartered banks to finalize a C$260 million credit facility, in addition to a C$25 million supplemental credit facility.

The supplemental credit facility is expected to be subject to repayment in October, the company said in a statement.

“The impact of the financing has reduced our 2009/2010 cash flow estimates, and is expected to see per share production shrink by 18 percent in 2009 and 8 percent in 2010,” said Kristjansen, who downgraded the stock to “hold” from “buy”.

Separately, Dundee Securities cut its price target on the stock to C$2.00 from C$2.25 to reflect the dilution associated with the equity issue, and said it expects production volumes to decline through the year but net debt to be reduced to about C$235 million by year end.

“We expect Iteration to remain conservative with its capital in the short term and are expecting capital spending less than cash flow in 2009 and 2010,” Dundee analyst Grant Daunheimer said.

Iteration said it will use the proceeds from the offering to fund its 2009 capital program, reduce its indebtedness and for general corporate purposes.

“Essentially, given the C$25 million repayment in October, this is a supplemental C$25 million in financing which we expect will be retained as a buffer for low gas prices and will not be used to increase capital spending materially,” said Daunheimer, who kept a “buy” rating on the stock.

Shares of the Calgary, Alberta-based company were down 13 Canadian cents at C$1.27 Tuesday afternoon on the Toronto Stock Exchange. They had gained 87 percent of their value over the past one month through Monday. ($1=1.212 Canadian Dollar) (Reporting by Ashutosh Joshi in Bangalore; Editing by Deepak Kannan)

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