Afren collapses on default

Afren chiefs have been working around the clock trying to adapt the FTSE 250 firm's capital structure and improve its chances of survival. Earlier this week we were told the oil company was making the most of a 30-day grace period on its $15 million bond interest payment, originally due at the beginning of February. Now it has decided not to pay up, and the prospect of a default has caused the share price to plummet.

Trying to reassure investors, management said Afren will not be forced to repay 2016, 2019, 2020 notes and other debt facilities as a result of the default or cross-default. The committee of bond holders talking to Afren have said they will not take action against it, in the hope that this will allow an agreement over the restructuring to be reached, saving the company.

Of the default, VSA Capital said: "This does not come as a massive surprise since AFR has recently been downgraded by Fitch and S&P credit agencies respectively to C and D ratings meaning possible default."

But there is still the small matter of the $50 million payment due on the $300 million Ebok debt facility, which was delayed again earlier this week. The share price plunge wiped out gains made earlier as excitement over potential new bidders and the delays to its debt repayment sparked a mini-rally. Afren is not quite at all-time lows yet, that milestone was reached in January, but it was worth a staggering 160p last year.

And there could be further pain. Investors face seeing their stakes diluted after management warned a funding agreement with a bond holder would probably come shackled to terms relating to the issue of new equity. They have described any shareholder dilution as "substantial".

"While the company is also having discussions with its other stakeholders and third party investors regarding interim funding and recapitalising the company, the board believes that an agreement between the company's creditors presents the most likely solution to the immediate issues facing the business,” it says. “There can be no certainty that an agreement will be reached."

Time is clearly running out for the upstream oil company and decisions must be made fast.

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