Business Context and Reporting Period
This Form 8-K Current Report covers events occurring on March 31, 2016, and April 6, 2016, for Gran Tierra Energy Inc. The filing details the entry into a material definitive agreement for a private convertible notes offering and an amendment to the company's existing credit facility.
Key Financial Metrics and Capital Structure
- Debt Issuance: The Company agreed to sell $100.0 million in aggregate principal amount of 5.00% Convertible Senior Notes due 2021, with an option for Initial Purchasers to buy up to an additional $15.0 million.
- Interest Rate: 5.00% per year, payable semi-annually in arrears starting October 1, 2016.
- Maturity Date: April 1, 2021.
- Conversion Terms: Initial conversion rate is 311.4295 shares per $1,000 principal amount (equivalent to an initial conversion price of approximately $3.21 per share).
- Liquidity Constraints: The credit facility amendment requires the Company to prepay borrowings if it holds cash balances in excess of $35 million for any period of three business days.
Material Changes and Agreements
On March 31, 2016, the Company entered into a Purchase Agreement for the Notes and amended its credit facility to permit the issuance. The Offering was completed on April 6, 2016. The Notes are unregistered securities sold in reliance on Section 4(2) of the Securities Act. The Company agreed to a 90-day lock-up period regarding the sale of common stock or convertible securities following the agreement date.
Outlook, Risks, and Contingencies
- Redemption: The Company may not redeem the Notes prior to April 5, 2019, except in certain circumstances following a fundamental change.
- Fundamental Change Repurchase: If a fundamental change occurs, holders may require the Company to repurchase the Notes at 100% of the principal amount plus accrued and unpaid interest.
- Conversion Adjustments: The conversion rate is subject to adjustment in certain events but will not be adjusted for accrued and unpaid interest.
- Default Risk: The credit facility amendment adds an event of default upon the occurrence of a fundamental change.
Investor Verification Checklist
- Verify the final closing amount of the Notes, including whether the $15.0 million option was exercised.
- Review the full text of the Indenture (Exhibit 4.1) for specific definitions of "fundamental change" and conversion rate adjustment mechanisms.
- Confirm the Company's current cash balances to assess the likelihood of triggering the mandatory prepayment clause under the amended credit facility.
- Check subsequent filings for the impact of the 90-day lock-up period on the Company's ability to raise equity capital.