On November 19, 2008 Oilexco announced that it has filed an amended preliminary prospectus with securities regulators in certain provinces of Canada for an offering of Convertible Senior Unsecured Bonds and Common Shares.The offering being marketed consisted of up to U.S. $150,000,000 aggregate principal amount of Convertible Senior Unsecured Bonds due 2013 and up to 20,000,000 common shares at an issue price of C$2.25. Subject to market conditions, the offering was anticipated to close on or about December 5, 2008. The Bonds were expected to be senior, unsecured obligations of Oilexco bearing interest at an annual rate of 15% payable quarterly in arrears commencing in March, 2009 and maturing five years and one day following the closing date. Bonds were expected to be convertible at the option of the holder into common shares of Oilexco at a conversion price (using a fixed exchange rate of U.S.$1.00=C$1.2239) of C$2.74 per common share from the 41st day after the closing date to the 6th business day before the maturity date. If a holder were to convert the Bonds before the third anniversary of the closing date, then Oilexco would pay to the holder two-thirds of the nominal value of the remaining interest that would otherwise be payable on the Bonds up to the third anniversary of the closing date (the “Make-Whole”). The Make-Whole premium would be payable in cash or (subject to regulatory approval) Oilexco common shares at the option of Oilexco, with the number of common shares determined by the volume weighted average trading price of Oilexco’s common shares on the Toronto Stock Exchange for the ten trading days prior to the date of conversion.
The net proceeds from the offering were slated to repay ₤30 million of bank indebtedness, which allowed for the deferral of the remaining ₤70 million until November 2009, to fund the Corporation’s 2009 capital spending program at its development properties and for general corporate purposes.
On November 20, 2008, Oilexco announced that following a Board Meeting held to review the proposed offering being led by Canaccord Adams of up to U.S. $150,000,000 of 15% Convertible Senior Unsecured Bonds and up to 20,000,000 Common Shares, it has been decided to cancel this offering. Furthermore, the company announced that it had appointed Morgan Stanley to assist it in reviewing these strategic alternatives which include mezzanine and debt financing, industry and financial partnerships together with other financing alternatives.
As far as I know, Oilexco's stock was halted on the TSX and probably the LSE all day November 19, 2008. On November, 20, 2008 shares of Oilexco resumed trading and plunged by upto 40%. A number of analysts, one of them being the duo of Pierce and Nicol of Tristone regarded the November 19, 2008 announcement of the convertible bond and common share issue as "very favourable to the convertible holders and very dilutive to existing shareholders, particularly if convertible holders convert early and receive their make whole interest in the form of shares."
Before Oilexco's November 20, 2008 announcement regarding its appointment of Morgan Stanley to assist it in reviewing strategic alternatives, Pierce and Nicol recommended that in light of Oilexco's short term funding obligations and perhaps a prolonged period of depressed commodity prices, the company's best course of action might be "sell assets and/or the company outright." Pierce and Nicol go on to say, "We recognize that it may be difficult for Oilexco to command ‘top dollar’ for its assets given that buyers know its financial situation. We feel however, that Oilexco has a diverse portfolio with some outstanding assets (specifically Huntington and Moth), and that its strategy of keeping higher working interest and operatorship would allow the company (and shareholders) to capture a higher value than one might expect."
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