Frontera Energy Closes $220 Million Loan for ODL Recapitalization
Frontera Energy Secures $220 Million Loan for Recapitalization
Closing of Recapitalization Financing Satisfies Financing Condition
Frontera Energy Corporation (TSX: FEC) is excited to announce the closing of a substantial loan that marks a critical step in its financial strategy. Frontera's subsidiary, Frontera Pipeline Investment AG ("FPI"), has engaged in an amended credit agreement with a syndicate of lenders led by Macquarie Group. This agreement boosts the total amount available to $220 million, specifically designed to support Frontera’s interests in Oleoducto de los Llanos Orientales S.A. ("ODL"). Importantly, this Recapitalization Facility is non-recourse to Frontera itself and is primarily funded through cash flows generated from ODL.
With the closing of the Recapitalization Facility, FPI has satisfied all necessary conditions, enabling the release of these funds to the company. The financing is a significant milestone for Frontera, allowing them to move forward with their strategic plans.
b>The Company emphasizes that all financial figures mentioned are in U.S. dollars unless specified otherwise.
Comments from Frontera's CEO
Orlando Cabrales, the Chief Executive Officer of Frontera, expressed delight over this accomplishment, stating, "We are thrilled to complete the ODL recapitalization. This enables us to return significant value to our investors while preserving potential future advantages from this vital transportation asset. By not including Puerto Bahía in the security offerings, we give the port greater flexibility to advance strategic growth initiatives. We’re eager to continue generating returns for our investors."
ODL is a key midstream asset located in a significant oil-producing region, connected by a 260-kilometer onshore pipeline. This pipeline is a joint venture comprising 35% ownership by FPI and 65% by Cenit Transporte y Logistica de Hidrocarburos SAS. It notably links to the Llanos region, which contributes to approximately 70% of the country's proven oil reserves. ODL's efficient operations make it a preferred partner for several major clients such as Ecopetrol and GeoPark.
In the previous year, ODL successfully transported roughly 242,000 barrels of oil each day, equating to about 30% of the nation's daily oil production. This impressive throughput resulted in an EBITDA of $274 million, and the owners received $151 million in capital distributions during this robust return period. ODL remains committed to growth, having recently completed enhancements to its infrastructure to connect with Ecopetrol's Caño Sur field.
The restructured Credit Agreement includes two primary loans: a first-lien term loan of up to $180 million and a second-lien term loan of $40 million. The first-lien loans contain both floating and fixed interest rate segments, with floating rates based on the Secured Overnight Financing Rate ("SOFR") plus a fixed margin. Interest on the second-lien loans may reach 15% per annum. All loans have varying terms, the last maturing in December 2031, alongside an efficient cash sweep mechanism for optimizing debt repayment.
Through this new financing, Frontera will gain around $115 million in net proceeds, ensuring continued operational benefits and future potential gains from ODL. Excluding Puerto Bahía from this agreement allows for better financing options for forthcoming projects.
The Company plans to utilize part of the newly acquired funds for a share repurchase offer, aiming to provide value back to their shareholders in a substantial issuer bid.
This recapitalization also qualifies as a "related party transaction" under Multilateral Instrument 61-101, linking back to GDA Luma Capital Management, LP, which partook in buying a segment of the second lien loans. Frontera is committed to transparency and will file detailed reports as required by regulation.
Conclusion: Meeting Financing Conditions
The closing of the Recapitalization Facility fulfills the debt financing criteria essential for its previously stated cash tender offer aimed at purchasing up to $65 million of its outstanding Senior Secured Notes. The options for this transaction are currently being evaluated with dealer managers in place to facilitate the process.
In essence, this financing represents an important evolution in Frontera's financial strategy, equipping the company to pursue new opportunities while ensuring stakeholder confidence.
About Frontera Energy
Frontera Energy Corporation is a Canadian public entity engaged in multiple sectors including exploration, development, production, and transportation of oil and gas across South America. The Company possesses a diverse portfolio with 22 exploration and production blocks throughout the region. With a focus on sustainable practices, Frontera is devoted to operating responsibly while prioritizing safety and environmental stewardship.
Frequently Asked Questions
1. What is the purpose of the $220 million loan secured by Frontera?
The loan aims to recapitalize Frontera’s interest in the Oleoducto de los Llanos Orientales, enhancing shareholder value and future growth potential.
2. How does the Recapitalization Facility benefit Frontera?
The facility provides funds to support operations and growth initiatives, allowing Frontera to distribute capital to its investors while maintaining flexibility for strategic projects.
3. What are the terms of the loans provided in the Credit Agreement?
The agreement includes a first-lien term loan of up to $180 million and a second-lien term loan of $40 million, with varying interest rates based on market conditions.
4. How does ODL play a role in Frontera's operations?
ODL is a significant midstream asset that facilitates oil transportation, playing a crucial role in linking oil production areas to markets, thus generating substantial revenue.
5. What are Frontera’s commitments towards sustainability?
Frontera is dedicated to conducting its business in a socially and environmentally responsible manner while focusing on safety and operational integrity.
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