Questor: can hedge fund defeat Premier Oil as it tries to change retail bond terms?

Questor Income Portfolio: Premier wants to extend the bonds’ maturity and pay a higher interest rate but there's one more hurdle to surmount

Richard Evans 21 February 2020 • 6:00am

An oil rig — We added Premier Oil bonds to our Income Portfolio in October 2016 Credit: Mary Altaffer/ AP

In recent weeks we have covered the attempts by Premier Oil to change the terms of its debts, which would involve holders of its retail bonds, included in our Income Portfolio, receiving a higher rate of interest for a longer term.

There has been progress since we reported the proposed restructuring four weeks ago but there are still more hurdles the company must surmount if the bond terms are to be changed.

A big step was taken when creditors approved the changes by the required majorities on Feb 12. This was despite the opposition of a hedge fund, Asia Research & Capital Management (ARCM), which owns a significant amount of Premier’s debt.

However, before the “scheme of arrangement” by which the restructuring will be carried out can take effect, a court has to give its agreement. At the hearing, scheduled for March 17, ARCM plans to argue its case against Premier’s plans vigorously.

The hedge fund believes schemes of arrangement should not be used to make changes to contracts such as bond terms unless a company’s survival is at risk. It also believes the transactions Premier intends to make in conjunction with the debt restructuring will make it a much riskier business.

Will its attempt to derail the deal succeed? A spokesman for Premier said it was rare for courts to reject schemes of arrangement but not unknown.

Whenever a court case is involved, we must acknowledge some uncertainty about the outcome. Hence holders of the retail bonds at this stage cannot assume that the interest rate and maturity date will change as intended. We will report again after the court hearing.

Questor says: hold

Ticker: PMO1

Bond price at close: £104.22

Update: ULS Technology

Last week we reported the strange goings-on with ULS Technology’s share price, which crashed from 62p to 52p in two days for no obvious reason and then recovered to 58p.

The following day shares in the conveyancing software firm rose again to 64.5p; they closed last night at 65p. In other words, whatever it was that sent the shares lower, the market seems to have forgotten about it.

Questor is still in the dark about the reason for the fall and rise. We can only fall back, rather unsatisfactorily, on the reflection that occasionally the market for smaller stocks is thin and at times it doesn’t take much to move a share price.

The lesson, however, is crystal clear: shareholders must keep a firm eye on the fundamentals of a business and on their own reasons for holding the stock in question. If nothing changes in those respects, wild – even frightening – movements in the share price must be ridden out.

Often, as in this case, the squall passes in days and investors can pat themselves on the back for refusing to be panicked. The shares remain a hold.

Questor says: hold

Ticker: ULS

Share price at close: 65p

Update: Regional Reit

Shares in Regional, the property investment trust, have had an excellent few months. They were as low as 101.4p on Oct 2 but have now risen to 118p, a gain of 16.4pc – not bad for what is supposed to be a defensive asset.

We added the shares to the Income Portfolio at 103p in October 2016. In addition to our capital gains, the most recent full-year dividend, 8.05p a share for the year to December 2018, equates to a yield of 6.7pc at our purchase price.

Since then, however, the trust has announced an increase in its dividend for the third quarter of the 2019 financial year: it rose by 3pc to 1.9p a share. Although there can be no guarantee, Questor would expect a similar increase in the final dividend, due to be announced next week.

Yesterday the company said it was considering raising more money from shareholders to increase the size of its portfolio. We trust it to invest any proceeds sensibly.

Questor says: hold

Ticker: RGL

Share price at close: 118p

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