KCA Deutag eyes covenant waiver requests-sources

* KCA Deutag to step up debt talks with mezzanine lenders

* Likely to seek waiver for Nov.15 covenant breach-sources

* First Reserve, lenders may inject new equity

By Sarah White

LONDON, Oct 20 (BestGrowthStock) – British-based oil drilling
contractor KCA Deutag is set to step up negotiations with
creditors as it tries to avoid a looming covenant breach, two
sources close to the discussions said.

KCA Deutag is likely to ask its mezzanine lenders, who sit
at the bottom of the capital structure, to waive an expected
breach on their loans on Nov. 15, and is drawing up
restructuring proposals for creditors, the sources said.

But the talks could be lengthy, as various investor groups
aim to table their own proposals for the biggest platform
drilling contractor in the North Sea and Caspian regions.

“There isn’t a big liquidity problem but a cash injection is
still needed to fix covenants,” said one of the sources.

The company will also need an extension to a covenant waiver
granted earlier this year by senior lenders, which also expires
on Nov. 15. The company declined to comment.

KCA Deutag — a subsidiary of oil services company Abbot
Group [TRBTAG.UL] — started renegotiating its $2.16 billion
debt pile after it failed to raise a high-yield bond in August,
which would have repaid mezzanine investors.

Private equity group First Reserve, which owns Abbot Group,
would have injected $200 million into KCA Deutag if its bond
sale had been successful, allowing the group to amend senior
debt covenants. [ID:nLDE6781G1]

Asset management firms BlackRock (BLK.N: ), GoldenTree, TCW
Group and Western Asset Management Co sit on the mezzanine
co-ordinating committee. KCA Deutag is about to formally
recognise this group, another source said.

The investors are mulling a plan to inject fresh capital
into KCA Deutag, the first source said.

“It’s not clear how much yet — that will depend on further
analysis of the company figures,” the person said.

First Reserve may also spend new money in return for
resetting covenants, and could inject a further $103 million by
converting its mezzanine position into equity.

(Editing by David Hulmes)

KCA Deutag eyes covenant waiver requests-sources