Capital/Financing Update • Jun 2, 2017
Capital/Financing Update
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Paris, France – June 2nd, 2017
CGG announces that it has reached an agreement in principle on a financial restructuring plan (the "Agreement in Principle") which meets the Company's objectives of (i) full equitization of the existing unsecured debt, (ii) extension of the maturity of the secured debt and (iii) financial flexibility to confront various business scenarios through, inter alia, additional new money (the "New Money") and has garnered the support of the majority of its secured lenders, the majority of the holders of its Senior Notes and DNCA (in its capacity as a longstanding institutional shareholder, bondholder and convertible bondholder of the Company).
Status of the Financial Restructuring Process
On March 3rd, 2017, CGG S.A ("CGG" or the "Company") entered into a financial restructuring process with the aim of significantly reducing debt levels and related cash interest costs and more broadly addressing its capital structure constraints.
Following its announcement dated May 12th, 2017, under the aegis of the mandataire ad hoc, the Company has re-engaged in discussions with certain of its main creditors and DNCA and their respective advisers, under non-disclosure agreements.
Those discussions led to the Agreement in Principle supported by (i) the Company, (ii) the Secured Lenders Coordinating Committee (representing approximately 52.7 % of the aggregate principal amount of the secured debt), (iii) DNCA (representing c. 7.9% of the share capital and 7.7% of the voting rights as well as 5.5% of the aggregate principal amount of the Senior Notes and 18.7% of the aggregate principal amount of the Convertible Bonds), as well as (iv) the members of the ad hoc Committee of the Senior Notes (representing c. 52.4% of the aggregate principal amount of the Senior Notes (the "ad hoc Committee of Senior Notes"). The representative of the masses of holders of Convertible Bonds has not supported the Agreement in Principle. The two other shareholders holding more than 5% of the Company's share capital, Bpifrance Participations and AMS Energie, who participated in the previous discussions leading to May 12th 2017 announcement have not participated in the negotiations of the Agreement in Principle.
The Agreement in Principle is based on the same objectives as the proposal published on May 12th, 2017 (the "May 12th Proposal"): it is in line with the Company's corporate interest, preserves the Group's integrity, provides a framework for long-term sustainability for the Company's businesses, employees and customers, and offers its current shareholders an opportunity to participate in the Company's recovery.
The Agreement in Principle is detailed in Appendix 1 and comprises the following key elements:
Under the terms of the Agreement in Principle, the ownership percentages of the existing shareholders in the Company (see page 12 of the attached presentation) would be:
the Warrants #1 and #2; 17.2% after exercise of the Warrants #1; and 22.4% after exercise of both the Warrants #1 and #2;
The Agreement in Principle has been approved in principle by the Company's board of directors. It is subject to the finalisation of the negotiations of its final terms, and the necessary documentation to launch the private placement relating to the issuance of the new Second Lien Senior Notes with Penny Warrants (including lock-up agreements and private placement agreements provided for under the Agreement in Principle to be finalized no later than June 12, 2017).
The implementation of the Agreement in Principle is subject to various customary conditions precedent including the approval of the necessary resolutions by the shareholders' meeting of the Company and obtaining the required level of support from creditors in the proceedings that would be launched in France and possibly in other jurisdictions. Assuming the applicable conditions precedent are satisfied or waived, the implementation of the Agreement in Principle is expected to occur no later than February 28, 2018.
In this context, with the authorization of the Commercial Court of Paris, CGG Group's Board of Directors has decided to postpone the Ordinary General Assembly expected to vote on the 2016 accounts, so that the shareholders can vote both on the 2016 accounts and the restructuring. The market will be kept informed about the schedule, in compliance with stock market rules.
In accordance with the AMF General Regulation, the Company's board of directors will appoint an independent expert to issue a report on the financial restructuring.
2021 Senior Notes coupon payment due June 1st, 2017
CGG has an interest payment of approximately \$21.2 million due on June 1, 2017 in respect of its 6.5% 2021 Senior Notes. Although it has sufficient cash on hand to make the payment, CGG has elected not to do so and to use the 30-day grace period during which it retains the right to pay the interest due to the holders of the 2021 Senior Notes and thereby remain in compliance with the indenture governing the 2021 Senior Notes.
As a reminder, CGG had an interest payment of approximately \$12.4 million due on May 15, 2017 in respect of its 5.875% 2020 Senior Notes. Although it had sufficient cash on hand to make the payment, CGG elected not to do so and to use the 30-day grace period during which it retains the right to pay the interest due to the holders of the 2020 Senior Notes and thereby remain in compliance with the indenture governing the 2020 Senior Notes.
Failure to make such interest payment by the end of the 30-day grace period would result in an "Event of Default" under both indentures. CGG believes that it has sufficient liquidity to continue meeting all of its obligations during the grace period. The 30-day grace period related to the 2020 Senior Notes ends on June 14, 2017.
CGG will consider commencing voluntary court proceedings shortly, potentially in multiple jurisdictions. These court-supervised processes will be pursued to implement the Agreement in Principle and preserve the Company's liquidity and the value of its business. As numerous companies have demonstrated, these processes can be an effective way of achieving an efficient debt restructuring with minimal disruption to the business.
In parallel with our financial restructuring process, we remain focused on our high level of services to our customers and quality of our integrated product offerings.
"Convertible Bonds" means CGG's 1.25% convertible bonds due 2019 (ISIN: FR0011357664) (the "2019 convertible bonds") and 1.75% convertible bonds due 2020 (ISIN: FR0012739548) (the "2020 convertible bonds").
"Senior Notes" means CGG's 6.500% Senior Notes due 2021 (CUSIP: 204384AB7 / ISIN: US204384AB76; CUSIP: F1704UAD6 / ISIN: USF1704UAD66) (the "2021 Notes"), 5.875% Senior Notes due 2020 (Reg. S ISIN: XS1061175607 / Reg. S Common Code: 106117560; Rule 144A ISIN: XS1061175862 / Rule 144A Common Code: 106117586) (the " 2020 Notes") and 6.875% Senior Notes due 2022 (Reg. S CUSIP: F1704UAC8 / Reg. S ISIN: USF1704UAC83; Registered CUSIP: 12531TAB5 / Registered ISIN: US12531TAB52) (the "2022 Notes").
Appendix 1: Restructuring Financial Proposal Presentation
An English language conference call is scheduled today at 9:00 am (Paris time) – 8:00 am (London time)
From your computer at: www.cgg.com
A replay of the conference will be available via webcast on the CGG website at: www.cgg.com.
For analysts, please dial the following numbers 5 to 10 minutes prior to the scheduled start time:
France call-in UK call-in Access code
+33(0)1 76 77 22 23 +44(0)20 3427 0503 3806792
CGG (www.cgg.com) is a fully integrated Geoscience company providing leading geological, geophysical and reservoir capabilities to its broad base of customers primarily from the global oil and gas industry. Through its three complementary businesses of Equipment, Acquisition and Geology, Geophysics & Reservoir (GGR), CGG brings value across all aspects of natural resource exploration and exploitation. CGG employs around 5,600 people around the world, all with a Passion for Geoscience and working together to deliver the best solutions to its customers.
CGG is listed on the Euronext Paris SA (ISIN: 0013181864) and the New York Stock Exchange (in the form of American Depositary Shares. NYSE: CGG).
Contacts
Group Communications Christophe Barnini Tel: + 33 1 64 47 38 11 E-Mail: : [email protected] Investor Relations Catherine Leveau Tel: +33 1 64 47 34 89 E-mail: : [email protected]
A description of the risks to which the CGG group is exposed appears in section 3 "Risk Factors" of the CGG's "Document de référence" and in Item 3 of CGG's annual report on Form 20-F, filed with the French financial markets authority (AMF) and the Securities and Exchange Commission (SEC), respectively, on 1 May 2017. The forward-looking statements contained in this document are based upon information available to CGG on the date of this document. CGG does not undertake to update or revise any of these statements to take account of events or circumstances arising after the date of this document or to take account of the occurrence of unexpected events.
Agreement in Principle
1.Members of the Secured Lenders Coordinating Committee: funds or assets managed by Goldman Sachs, Makuria, Och Ziff, T Rowe Price, respectively
2.Members of the HYB ad hoc Committee: funds managed by Alden Global, Attestor Capital, Aurelius Capital, Boussard & Gavaudan Asset Management, Contrarian Capital Management, ThirdPoint Capital, respectively
| SUMMARY OF MAIN ECONOMIC TERMS | |
|---|---|
| Treatment of the Unsecured Debt Coupon |
HYB: \$86m accrued and unpaid interest to be paid on closing with new HY Bonds CB: \$5m accrued and unpaid interest to be paid on closing in cash |
| Reserved Capital Increase to HY Bondholders |
HYB outstanding amount of c.\$1,515m to be exchanged into Equity (except for the portion potentially used in the backstop of the Rights Issue) Exchange at Par for Shares at \$3.50 |
| Reserved Capital Increase to Convertible Bondholders |
Convertible Bonds amount of c.\$378m to be exchanged into Equity Exchange at Par for Shares at \$11.50 |
| Issue of Warrants in favor of Original Shareholders |
Warrants #1 at \$3.50 / 4-year maturity 4 Warrants for 3 Shares |
| SUMMARY OF MAIN ECONOMIC TERMS | |
|---|---|
| \$125m Rights Issue with Warrants (ABSA) limited to Existing Shareholders |
Issuing New Shares at \$1.75 coupled with Warrants #2 at \$4.5 / 5 year maturity 2 Warrants for 3 New Shares Open to all existing shareholders (before equitization of the HY Bonds and the Convertible Bonds) Backstop (payable on closing): DNCA has agreed to backstop \$70m of the Rights Issue in cash Until no later than 21 days before the shareholders meeting, the Company, at its election, may propose to, and agree with significant shareholder(s) who would sign a lock up agreement to backstop the amount not taken up by DNCA Any amount not backstopped will be backstopped by the HY Bondholders by way of set off of their claims under the HY Bonds 10% Backstop fee payable in cash pro rata to those parties who provide the backstop in cash |
| \$375m New HYB provided by the Unsecured Lenders |
Issuing New High Yield Bonds at par coupled with Penny Warrants (fully diluted basis before Warrants #1 & #2) Floating Libor (floor at 1%) + 4% cash + 8.5% PIK 6-year maturity post Closing Date (i) USD Tranche and (ii) EUR Tranche, in an amount to be agreed Backstop (payable on closing): Backstopped by HYB Ad Hoc Committee 3% cash backstop fee paid to the HYB Ad Hoc Committee Penny warrants allowing to subscribe for 1.5% of share capital (after restructuring but before exercise of Warrants 1 and Warrants 2) granted to the HYB Ad Hoc Committee Commitment fee (payable on closing): Possibility to commit to subscribe for their exact prorata amount offered to all qualified investors holding HYB on June 1 , 2017 (the "Record Date"), who sign the lock-up agreement during the plan support period (dates to be determined). Allocations will be determined based on the lower of holdings on (i) the Record Date and (ii) the commitment date 7% cash commitment fee paid prorata to parties committing to subscribe for New High Yield Bonds Penny warrants allowing to subscribe for 16.0% of share capital (after restructuring but before exercise of Warrants 1 and Warrants 2) prorata to parties committing to subscribe for New High Yield Bonds |
| Other 10 |
Penny warrants allowing to subscribe for 1% of share capital (after restructuring but before exercise of Warrants 1 and Warrants 2) granted to the HYB Ad Hoc Committee as a Global Coordinator fee (payable on closing) No deal no fee |
| Shareholding Pre New Money (Pre Penny Warrants) | Post Debt Equitisation |
Including Warrants 1 |
|---|---|---|
| Existing shareholders | 4,5% | 10,0% |
| Convert. Bonds | 6,7% | 6,4% |
| HYB | 88,7% | 83,7% |
| Total | 100% | 100% |
| Shareholding Post New Money | Post Debt Equitisation |
Including Warrants 1 |
Including Warrants 2 |
|---|---|---|---|
| Existing shareholders | 13,6% | 17.2% | 22.4% |
| of which from new money | 10.4% | 10.0% | 15.6% |
| of which from existing shares | 3.2% | 7.2% | 6.8% |
| Convert. Bonds | 4.8% | 4.6% | 4.3% |
| HYB | 81.6% | 78.2% | 73.3% |
| Total | 100% | 100% | 100% |
Note: Assuming a full take-up in the Rights Issue
Source: Company (1) Full cost base including Depreciation and Amortization
(2) Including Manufacturing temporaries
14
(3) Excluding impact of variation in fixed asset suppliers
| FYE 31/12 | 2016A | 2017E | 2018E | 2019E |
|---|---|---|---|---|
| Revenue | \$1.2 BN | ~\$1.5 BN | ~\$2.0 BN | |
| (1) EBITDA Margin |
27.4% | 35.0% - 40.0% |
37.5% - 42.5% |
|
| MC Capex | \$295m | In line with 2016A results |
\$275 – 325m |
|
| Industrial Capex | \$71m | \$100 – | 125m | |
| R&D Capex | \$34m | Stable at c.\$35m | ||
| Change in Working Capital |
\$198m | Negative – In line with revenue growth (excluding ~\$50 MM Pemex accelerated factoring in 2017) |
||
| Cash Transformation Cost | \$167m | \$80m | \$15m | \$10m |
* Here-shown excluding Capital Lease
Restructuring Savings (over 2017-2019)
In parallel with our financial restructuring process, we remain focused on our high level of services to our customers and quality of our integrated product offerings
| COMPANY PROPOSAL (12/05/2017) |
AGREEMENT IN PRINCIPLE (01/06/2017) | |
|---|---|---|
| HY Bondholders | HYB amount of principal plus accrued and unpaid interest (\$1,601m, if closing occurs by the end of October 2017) to be converted into Equity @ \$4 (except for the portion potentially used in the backstop of the Rights Issue) |
HYB amount of principal plus accrued and unpaid interest not paid in kind on Closing Date (\$1,515m, if closing occurs by the end of October 2017), to be converted into Equity @ \$3.5 (except for the portion potentially used in the backstop of the Rights Issue) \$86m accrued and unpaid interest to be paid on closing with new HY Bonds |
| Convertible Bondholders |
Convertible Bonds amount of principal plus accrued and unpaid interest (\$383m if closing occurs by the end of October 2017) to be converted into Equity @ \$15 Possibility to participate in the new HYB (\$25m) |
Convertible Bonds amount of principal plus accrued and unpaid interest not paid in cash on Closing Date (\$378m if closing occurs by the end of October 2017) to be converted into Equity @ \$11.5 No participation in the new HYB \$5m accrued and unpaid interest to be paid on closing in cash |
| Rights Issue | New Money of \$75m @ \$2 Warrants 2 based on a 1/1 ratio |
New Money of \$125m @ \$1.75 Warrants 2 based on a 2 warrants for 3 shares ratio |
| New HYB | \$350m (with Penny warrants for 12.5%) HYB: \$325m (11.6%) CB: \$25 (0.9%) 10% Backstop fee payable in cash to those parties providing the backstop |
\$375m (with Penny warrants for 16% of the share capital) HYB: \$375m CB: \$0m Backstop (payable on closing): Backstopped by HYB Ad Hoc Committee 3% cash backstop fee paid to the HYB Ad Hoc Committee Penny warrants allowing to subscribe for 1.5% of share capital (after restructuring but before exercise of Warrants 1 and Warrants 2) granted to te HYB Ad Hoc Committee Commitment fee (payable on closing): 7% cash commitment fee paid prorata to parties committing to subscribe for New High Yield Bonds Penny warrants allowing to subscribe for 16.0% of share capital (after restructuring but before exercise of Warrants 1 and Warrants 2) prorata to parties committing to subscribe for New High Yield Bond |
| Other | Global Coordinator fee: Penny Warrants allowing to subscribe for 3.0% of share capital (after restructuring but before exercise of Warrants 1 and Warrants 2) Warrants 1 for existing shareholders based on a 1.2x ratio |
Global Coordinator fee for the HYB ad hoc committee (payable on closing): Penny Warrants allowing to subscribe for 1.0% of share capital (after restructuring but before exercise of Warrants 1 and Warrants 2) Warrants 1 for existing shareholders based on a 4 warrants for 3 shares ratio No deal no fee |
| AREAS TO BE ADDRESSED | HEADLINE TERMS |
|---|---|
| Borrower | CGG Holdings Inc. (US) |
| Form | Bond format NY Law |
| Guarantors | Adjusted guarantee package compared to existing package, reflecting release of following guarantors1: CGG MRN, CGG Holding UK I, CGG Holding UK II, Sercel Inc, Sercel GRC Additional guarantors to be considered Pledge of shares owned by Obligors of any guarantor being released |
| Maturity | 5-year from Closing Date |
| Interest | Interest to be set at Closing Date, based on linear ratchet grid (and fixed for life with respect to the ratchet grid) : – Floating Libor (100bps floor) + 650bps cash + 250bps PIK if ≥ \$700m outstanding at Closing Date – Floating Libor (100bps floor) + 650bps cash + PIK between 125bps and 250bps depending on total outstanding, if outstanding between \$600m and \$700m outstanding at Closing Date – Floating Libor (100bps floor) + 650bps cash + PIK between 0bps and 125bps depending on total outstanding, if outstanding between \$500m and \$600m outstanding at Closing Date – Floating Libor (100bps floor) + 650bps cash if ≤ \$500m outstanding at Closing Date |
| Amortization | Full Bullet Bond (no contractual amortization) No excess cash flow sweep |
Note 1: Subject to the provision of specified satisfactory information on Guarantors
| AREAS TO BE ADDRESSED | HEADLINE TERMS |
|---|---|
| Early Prepayment |
Callable at par (in whole but not in part) at any time during the first 6 months after Closing Date (for avoidance of doubt from end of month 3 the repayment will be inclusive of the 3% roll-over fee that will be PIKed) ; Non-call between months 7 and 36, thereafter callable at no prepayment premium Closing Date shall be the date of completion of the last of the operations to be implemented in the context of the restructuring including for the avoidance of doubt, effective date of chapter 11 and safeguards, satisfaction of all the conditions precedent and completion of the securities issuances Same suite of mandatory prepayment events as current documentation (excluding Permitted Junior Debt Refinancing and Change of Control to be a put at 101% (for the avoidance of doubt the Non Call premium will still be due during the Non Call period)) – Permitted Junior Debt Refinancing terms: Cash coupon (in \$m) not higher than new HYB, maturity not earlier than new HYB and no better security than HYB |
| Upfront Paydown |
Any net new money amount above \$250m (incl. New money capital increase) after fees would paydown secured debt subject to a cap of \$150m |
| Covenant | No maintenance covenants except a minimum cash and cash equivalent covenant set at \$185MM Customary incurrence covenant including in respect with the issuance of additional debt (definition and threshold to be agreed) |
| Security | Consistent with existing security package (except for adjustments to guarantees as noted above) including customary negative pledge on unencumbered assets |
| Rollover Fee | Additional interest paid in kind in an amount equal to 3.0% of principal amount of the rolled over secured debt if no refinancing has occurred during the first 3 months after Closing |
| Other | Enable incurrence of additional debt up to \$200m pari passu (under a secured cap of \$900 MM) to fund Company's growth Secured lenders to have right of first refusal on providing the additional secured debt if the cost is greater than existing terms Will provide incremental security if we increase secured gross debt above \$800 MM Incremental security (1.5x coverage) for \$100 MM flexibility above \$800 MM Documentation refresh |
| AREAS TO BE ADDRESSED | HEADLINE TERMS |
|---|---|
| Issuer | CGG SA Format: US\$ documentation consistent with existing US\$ HYB |
| Amount | \$375m in cash (i) USD Tranche and (ii) EUR Tranche in an amount to be agreed \$86m from the payment of accrued and unpaid Coupon |
| Ranking | Adjusted guarantee package compared to existing package in favor of HYB, reflecting release of following guarantors: CGG MRN, CGG Holding UK I, CGG Holding UK II, Sercel Inc, Sercel GRC, Sercel Australia, Sercel Canada, CGG Canada Services Ltd Additional guarantors to be considered Obligation of CGG SA with a Silent Second Lien on US and French collateral (and additional collateral if legally feasible to have Silent Second Lien under local laws) |
| Intercreditor principles |
Silent second lien intercreditor agreement to be governed by NY law and to include drag along guaranty and lien release provisions upon disposition of collateral (i) permitted under senior debt documents in effect as of the closing date, (ii) consented to by the required senior lenders, (iii) pursuant to an exercise of remedies by the senior lenders and/or (iv) in connection with a sale under Section 363 of the Bankruptcy Code, in each case subject to lien attachment to proceeds |
| Tenor | 6 years from Closing Date (12 months after secured debt maturity) |
| Coupon | Floating Libor (100 bps floor) + 400bps (cash) + 850bps (PIK), for the USD Tranche Floating Euribor (100 bps floor) + 400bps (cash) + 850bps (PIK), for the EUR Tranche |
| AREAS TO BE ADDRESSED | HEADLINE TERMS |
|---|---|
| Call | Year 1: 120% Year 2: 120% Year 3: 112.5% From Year 4: par |
| Covenants | Incurrence based covenants only, consistent with existing US\$ HYB due 2022 subject to increase in baskets for operational purposes and flex for incurrence of \$200m additional debt for new senior secured financing Cross acceleration to senior secured debt |
| Use of proceeds | General corporate purpose for the first \$250m Any new money amount above \$250m (incl. New money capital increase) after fees would pay down secured debt (capped at \$150m) |
| Backstop / Commitment fee |
Backstop (payable on closing): Backstopped by HYB Ad Hoc Committee 3% cash backstop fee paid to the HYB Ad Hoc Committee Penny warrants allowing to subscribe for 1.5% of share capital (after restructuring but before exercise of Warrants 1 and Warrants 2) granted to the HYB Ad Hoc Committee Commitment fee (payable on closing): Possibility to commit to subscribe for their exact prorata amount offered to all qualified investors holding HYB on June 1 , 2017 (the "Record Date"), who sign the lock-up agreement during the plan support period (dates to be determined). Allocations will be determined based on the lower holdings on (i) on the Record Date and (ii) on the commitment date 7% cash commitment fee paid prorata to parties committing to subscribe for New High Yield Bonds Penny warrants allowing to subscribe for 16.0% of share capital (after restructuring but before exercise of Warrants 1 and Warrants 2) prorata to parties committing to subscribe for New High Yield Bonds |
| Other | Global coordination Penny Warrants allowing to subscribe for 1% of share capital (after restructuring but before exercise of Warrants 1 and Warrants 2) payable to the HYB Ad Hoc Committee on closing |
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