Frontera Energy Corporation on Friday disclosed that it has entered into a term sheet for a US$20 million rights offering bridge loan that will enable CGX Energy to continue to fund its share of costs related to the Corentyne, Demerara and Berbice blocks, the Berbice Deepwater Port, and other budgeted costs in Guyana.
Frontera is the majority shareholder of CGX Energy Inc and joint venture partner in the Petroleum Prospecting Licences for the Corentyne and Demerara blocks offshore Guyana (the “Joint Venture”).
The Rights Offering Bridge Loan is an advance on Frontera’s participation in a rights offering.
In a statement, Frontera said that the US$20 million Rights Offering Bridge Loan will be available to CGX for drawdown in tranches on a non-revolving basis until October 31, 2021. The Rights Offering Bridge Loan, together with all interest accrued, shall be due and payable on October 31, 2021, or at a later date as determined by Frontera.
It was noted that CGX and Frontera have agreed that the acquisition cost of any securities acquired by Frontera pursuant to the exercise of rights under the Rights Offering will be satisfied by the reduction of the amounts payable to Frontera under the Rights Offering Bridge Loan. Interest payable on the principal amount outstanding shall accrue at a rate of 9.7% per annum paid monthly in cash, with interest on overdue interest. If the Maturity Date is extended by Frontera, at its sole discretion, the new interest rate will be 15% per annum.
Meanwhile, the release noted that CGX, subject to approval of the TSX Venture Exchange, will offer rights to holders of its common shares at the close of business on the record date of October 1, 2021, on the basis of 0.157 of one Right for each CGX Share held (the “Rights Offering”). Each whole Right will entitle the holder to subscribe for one CGX Share upon payment of the subscription price of C$1.63.
Frontera disclosed that it has agreed to provide a standby commitment in connection with the Rights Offering.
“Pursuant to the terms of the standby purchase agreement, Frontera will agree to exercise Rights to maintain its current percentage of issued and outstanding CGX Shares and will also provide a standby commitment pursuant to which it will agree to acquire any CGX Shares available as a result of any unexercised Rights under the Rights Offering. As a result, CGX will be guaranteed to issue approximately 45,151,419 CGX Shares in connection with the Rights Offering, for aggregate gross proceeds of approximately C$73,600,000 (equivalent of approximately US$58,160,000) if one includes the principal amount of the Rights Offering Bridge Loan which will be used to fund a portion of Frontera’s purchase of CGX Shares under the Rights Offering,” Frontera said.
Further, Frontera will receive 5-year warrants to purchase the number of CGX Shares equal to 10% of the CGX Shares Frontera acquires under its standby commitment, at an exercise price equal to US$1.51 per Common Share of the C$1.91 closing price of the CGX Shares on the TSX Venture Exchange.
Frontera currently owns 212,392,155 CGX Shares, which represents approximately 73.85% of the issued and outstanding CGX Shares. Frontera also has a right to convert certain debt owed by CGX, which if converted would result in the issuance of additional CGX Shares.
As a result of the Rights Offering, Frontera could increase its ownership of outstanding CGX Shares from its current ownership of approximately 73.85% to approximately 79.11% if no other shareholder participates in the Rights Offering and Frontera elects to exercise its conversion rights under certain debt owed by CGX.