The document summarizes a proposed debt restructuring plan for Afren plc, a London-listed oil and gas company experiencing financial distress due to falling oil prices. Afren has over $1.2 billion in debt, including bonds maturing in 2016, 2019 and 2020. The restructuring plan involves issuing new bonds and shares to bondholders in exchange for debt forgiveness. If approved, it would reduce Afren's debt, extend maturities, and provide interim funding to avoid default. However, the plan requires approval from various stakeholders and faces significant challenges.

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26 March 2015
Oil & Gas Distress Contagion Spreads to Europe
A Case Study on Afren plc
In the wake of the dramatic plunge in the price of crude oil by more than 50% since mid-2014, our colleagues
in the US have produced numerous special reports on several topics focusing on analysing the debt
instruments of US energy companies (primarily exploration and production (“E&P”)) corporates operating in
the Oil and Gas Sector) in light of a potential or unfolding distress scenario1
.
Inevitably, earlier this year, it was reported that “bonds sold by European oil operators are showing signs of
distress. More than $4.5 billion of the securities are trading at less than 70 per cent of face value as investors
anticipate slumping profit and asset writedowns”2
.
In terms of the European Oil and Gas sector, perhaps the most highly reported name in distress is Afren plc
(the “Company”), the London-listed, Nigeria-based oil and gas E&P business, the fortunes of which have seen
rapid deterioration since the beginning of this year. In this Special Report, we will analyse recent events,
culminating in the Company’s latest announcement of its prospective debt restructuring, and their potential
initial impact on its outstanding high yield bonds.
Background and Recent Major Events
Afren’s corporate credit rating (CCR) and that of its secured debt has been downgraded numerous times in
quick succession over the last few months. It has been downgraded four times by Fitch since November 2014
from ‘B+’ to most recently, ‘RD’ and three times by S&P since December from ‘B+’ to ‘SD’. Reasons for the
rating actions have included increased reputational risk following dismissal of key officers for receipt of
unauthorised payments, lower oil price environment, deferral of a $50m scheduled amortisation payment on
its Ebok bank facility and the decision not to pay, following expiry of the grace period, the $15m interest
payment on its senior secured notes maturing in 2016 that had been due on 1 February.
Finally, on 13 March, Afren formally announced a debt restructuring proposal agreed with certain of its
creditors - comprising an hoc committee representing approximately 42% of the holders of its notes maturing
in 2016, 2019 and 2020 and a majority of at least 67% of the lenders under the Ebok credit facility - with a
1
Subscribers to Xtract’s US High Yield Special Reports may refer to our reports on the energy industry/oil and gas sector,
ranging from general overviews to specific spotlights on US energy companies (e.g. Halcon Resources, Hercules
Offshore, Energy XXI Ltd, Alpha Natural Resources, Samson Resources, Quicksilver, Venoco, Connacher, Transocean
Inc. and Sabine Oil and Gas Corporation) (date range: 27 October 2014 - 17 March 2015).
2
Source: Bloomberg Business (January 27, 2015).

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view to providing interim funding and eventually, effecting a recapitalisation of the Group3
(the “Proposed
Restructuring Package”).
Another factor contributing to recent volatility in the Company’s fortunes has been the failure to secure a
viable takeover offer, including its discontinuation of talks with Seplat in mid-February, another Nigerian-based
E&P company listed on the London and Lagos stock exchanges.
As a result of all these compounding issues, Afren’s shares and bonds are trading at a fraction of their initial
prices4
.
Afren Current Debt Capital Structure
According to Afren’s 2014 Preliminary Results (contained in the Recapitalisation and Trading Update dated 13
March 2015; 2014 full year results to be released by end March), the Group’s consolidated gross debt stands
at $1.294 billion5
. These figures include the following primary (bond and bank) debt instruments:
Debt Instrument Outstandings Maturity
$450 million 11.5% Senior Secured Notes due 2016 issued 3
February 2011 (plus $50m tap in February 2011) by Afren plc
(“2016 Notes”)
$253 million 1 February 2016
$300 million 10.25% Senior Secured Notes due 2019 issued 8
March 2012 by Afren plc (“2019 Notes”)
$250 million 8 April 2019
$360 million 6.625% Senior Secured Notes due 2020 issued 9
December 2013 by Afren plc (“2020 Notes”)
$360 million 9 December 2020
$300 million senior secured reserves based lending facility dated
24 March 2010 and amended and restated March 2013 borrowed
by Afren Resources (“Ebok Facility”)
$300 million 30 April 2016
$100 million Okwok Facility $50 million September 2015
$100 million OML26 Facility $100 million November 2017
3
In this regard, Afren has published a “Preliminary agreement for interim funding and refinancing structure” and a
“Recapitalisation and Trading Update” dated 13 March 2015 on its website (www.afren.com). Refer to this for further
detail on the Proposed Restructuring Package.
4
By way of illustration, Afren’s share price has plummeted from 150p in July 2014 to 3.19p as at today’s date. Similarly,
the Company’s three outstanding bonds have lost well over 50% of their value since issue, trading in the 40s region in
the past month.
5
Figure to be confirmed by Company. Note the Group also has other outstanding debt and liabilities, including finance
leases, not mentioned on the above table. Principal amount of the 2016 Notes, 2019 Notes and 2020 Notes (the
“Existing Notes”) corresponds to $863 million in aggregate.

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Current Defaults
As reported, Afren currently has two Events of Default continuing under its debt instruments: the $50 million
amortisation payment due on 31 January 2015 under the Ebok Facility and the $15 million interest payment
due on 1 February 2015 under the 2016 Notes.
Based on the limited summary of the Ebok Facility in the offering memorandum for the 2020 Notes, it does
not appear that the interest payment default under the 2016 Notes triggers a cross-default under the Ebok
Facility.
Furthermore, Afren has yet to default on the 2019 Notes or the 2020 Notes, for which the next interest
payment dates are 8 April 2015 and 9 June 2015, respectively. Neither does the failure to pay the scheduled
instalment under the Ebok Facility and the interest payment under the 2016 Notes give rise to an Event of
Default under the 2019 Notes or the 2020 Notes. This is because the $20 million “cross-default” provision
under these Notes is only effective on failure to pay principal at maturity, and so would not be triggered by a
non-payment of interest or interim payment of principal before the final maturity date (a variation of the
customary high yield cross-payment default sometimes observed in the more aggressive European bonds).
A Brief Summary of the Interim Funding and Recapitalisation Proposal
As is typical, the 30 day default in payment of the interest due on 1 February has given rise to an Event of
Default entitling the holders of 25% of the Notes’ balance to accelerate the 2016 Notes in accordance with
their terms.
However, as part of the Proposed Restructuring Package, the ad hoc committee representing approximately
42% of the 2016, 2019 and 2020 Notes in aggregate (the “Bondholders’ Committee) and a majority of at least
67% of the lenders under the Ebok Facility (the “Consenting Ebok Lenders”) have entered into a “lock-up”
agreement with the Group, by virtue of which they have agreed to refrain from accelerating the debt owing to
them by the Group or taking any enforcement action with respect to the assets securing such debt, with a
view to facilitating implementation of the Proposed Restructuring Package projected to take place between
the end of March (in the form of the Interim Funding) and June (for completion of the Recapitalisation).
The Proposed Restructuring Package is subject to numerous conditions and prerequisites, not least receipt of
requisite approvals of all the stakeholders in the Group (including shareholders and operating partners). On the
assumption that all such conditions precedent are fulfilled on a timely basis, we have set out below the
highlights of what the Proposed Restructuring Package would involve6
:
Interim Funding
 Anticipated to be completed by end of March:
6
Note however that the Proposed Restructuring Package contemplates contingency terms for the restructured debt in
the event that shareholder approval for the Recapitalisation is not obtained at the EGM to be convened for that purpose,
in which case the Recapitalisation will not involve the issuance of new share capital. That alternative scenario is not
covered for the purposes of this Report.

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 The issue of $212 million of one year super senior private placement PIK notes (“PPN”) that have been
pre-placed with certain members of the Bondholders’ Committee (the “Participating Noteholders”) to
provide the Group with $200 million of net ‘interim/bridge’ funding (pending completion of Recapitalisation
projected for end of June).
 The issue of the PPN is contingent on fulfillment (or waiver) of various conditions, including obtaining
consent of the remaining Ebok Lenders to the Recapitalisation and the amendment of the terms of the
2016 Notes and the 2019 Notes (by way of consent solicitation) to increase certain thresholds thereunder
to enable the PPN issue (requisite consent obtained and discussed in more detail below).
Recapitalisation
 Anticipated to be completed by end of June:
 The issue (expected end of June 2015) of $321 million of new (half PIK/half cash pay) high yield notes due
June 2017 (the “New HY Notes”) to part refinance the PPN (the balance being discharged with new
ordinary share issuance) and provide the Group with additional $100 million cash funding; to be
underwritten by Participating Noteholders with all Noteholders eligible to subscribe on a pro rata basis.
 Debt-for-Equity Swap involving 25% of the Existing Notes (amounting to $230 million) being converted
into newly issued ordinary shares in the Company, resulting in Noteholders holding 80% of the Company’s
increased share capital.
 Amendment and reinstatement of the balance of the Existing Notes into new notes of $345 million each
due 2019 and 2020 respectively (the “New 2019 Notes” and “New 2020 Notes”), (thereby reducing debt
outstanding from $863 million under Existing Notes to $690 million under New/Reinstated Notes and
pushing out bond maturity beyond 2016). These New Notes to be PIK initially and then payable in cash
once the New HY Notes are fully repaid.
 “Amend and Extend” of the Ebok Facility to push out maturity to 2019 and re-configure the amortisation
schedule such that no repayments are made until New HY Notes fully discharged.
 In addition to Debt-for-Equity Swap, new ordinary shares also to be issued as part of the Recapitalisation
to subscribers for the PPN and New HY Notes, as well as pursuant to an open offer to all shareholders,
expected to culminate in dilution of existing shareholders to up to 11% of the Company’s fully diluted
share capital.
 Debt-for-Equity Swap and issue of New HY Notes, New 2019 Notes and New 2020 Notes to be
implemented by way of UK scheme of arrangement of Noteholders7
.
7
Anticipated to be launched late April and sanctioned by English court early June.

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Immediate Impact of the Proposed Restructuring Package on the Existing Notes
On 16 March, Afren announced that it was soliciting the consent of the holders of its 2016 Notes and 2019
Notes to an increase to its “priority debt baskets” under the terms of those Notes in connection with the
Interim Funding.
At present, the debt covenant of both these Notes allows for a basket of “Priority Indebtedness” (including
debt that is effectively senior or structurally senior to the Notes or secured on a more senior basis than the
Notes) to be incurred up to the greater of $150 million and 20% of the Adjusted Consolidated Net Tangible
Assets (“ACNTA”). Whilst we do not have up-to-date figures for the current value of 20% of the Group’s
ACTNA, we can assume that it has been calculated as being less than the $212 million required to be raised
on a super priority basis by way of the PPN issue.
To effect such an amendment under the terms of the 2016 Notes and the 2020 Notes, the Issuer will have
required consent of a majority of the Notes’ balance. On 24 March, the Company announced that it had
received the requisite level of Noteholder consent under both sets of Notes.
Interestingly, in order to waive the Event of Default caused by the failure to pay interest on the 2016 Notes,
the Issuer would have required the consent of holders of at least 90% of the Notes’ balance (as we
understand it, the Bondholders’ Committee represents only around 42% of the 2016 Notes), but no reference
was made to such waiver being sought in the 16 March announcement.
What is also notable is that no consent is being sought to amend the terms of the 2020 Notes. This is
because the substantially larger “Priority Indebtedness” basket of the greater of $750 million and 30% ACTNA
provided in those Notes will accommodate the PPN issue.
UK Scheme of Arrangement
From Afren’s perspective, the advantage of amending and restating (in order to revise the terms of) the
Existing Notes by way of scheme of arrangement is undoubtedly the reduced approval threshold required. In
order for an English court to sanction the scheme, a majority in number (more than 50%) and 75% in value of
each class of creditors voting at a creditors’ meeting is required to approve it. This is lower than the 90% of
the Notes balance approval threshold that would be required under the terms of each set of Existing Notes.
Given that the Bondholders’ Committee constituting approximately 42% of the principal amount of the
Existing Notes has already acceded to the Lock-Up Agreement, whereby they commit to vote in favour of the
scheme, this will presumably facilitate and speed up the process for effecting the “Reinstated Notes”.
What is interesting is that it does not appear that the “amend and extend” of the Ebok Facility is
contemplated to be effected as part of the scheme of arrangement. Rather, accession of the remainder of the
Ebok lenders to the Lock-Up Agreement is required as a condition precedent to the issue of the PPN.
Afren is still very much at the initial stages of its capital restructuring process, which inevitably remains
subject to certain variables and contingencies. We will continue to monitor the progress of the situation, with
a view to highlighting matters that we think may be of interest to Noteholders.

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