RNS Releases
06 January 2017 - New secured loan facility PDF Print E-mail

The Board of InfraStrata plc (AIM:INFA), the independent gas storage company, is pleased to announce that it has signed a secured loan facility agreement (“Loan Agreement”) dated 5 January 2017 with Baron Oil plc (“Baron”) an AIM-quoted resources company.

Terms of the Loan Agreement

Under the terms of the Loan Agreement, Baron will provide a loan facility of up to £300,000 to InfraStrata (the “Loan”), which will be applied towards InfraStrata’s working capital requirements. The Board believes that these funds are sufficient, with existing funds, to meet InfraStrata’s minimum levels of corporate costs and care and maintenance costs on the Islandmagee gas storage project (the “Project”) to the end of 2017. The progression of the Front-End Engineering Design ("FEED") for the Project, as announced on 4 November 2016, will require the securing of additional funding, further details of which can be found below.

The Loan is for a term of 12 months from the date of the Loan Agreement. Baron is entitled, acting in its sole discretion, to extend the term of the Loan Agreement by an additional 12 months. The Loan will convert to an on-demand facility, repayable at any time following Baron's demand, with effect from 30 April 2017 in the event that £3.0m of further funding, the amount required to complete the funding for the FEED, has not been received by the Company on or prior to that date. In the event that the Loan does not convert to an on-demand facility, it is repayable by way of a single, bullet repayment on the date falling 12 months from the date of the Loan Agreement or 24 months from the date of the Loan Agreement if Baron exercises its discretion to extend the term of the Loan Agreement, as described above. The Company benefits from a right to prepay the Loan, in full, at any time by giving Baron not less than 10 business days' notice (which notice period may be shortened with the agreement of Baron).

The Loan is subject to an interest rate of 6% of the funds drawn down, which is payable monthly in advance (rising to 9% in a payment default situation). The Loan is available to be utilised by the Company during the period from (and including) the date of the Loan Agreement to (and including) 31 December 2017.

Baron will receive an additional £200,000 (the “Additional Payment”) in the event of a sale or disposal by InfraStrata or its subsidiaries, Islandmagee Storage Limited (“IMSL”) and InfraStrata UK Limited ("InfraStrata UK"), of substantially all of their assets, which now comprise interests in the Project, and/or a change in control of InfraStrata, IMSL or InfraStrata UK, within two years from the date of the Loan Agreement. Any such disposal or change of control will also trigger a mandatory prepayment of the Loan. In the event of a partial disposal of InfraStrata, IMSL or InfraStrata UK's interests in the Project (whereby InfraStrata and InfraStrata UK retain control of IMSL, the company through which InfraStrata holds its 90% interest in the Project and the operation of the Project) the Additional Payment will be reduced to £100,000, with the remaining £100,000 payable in the event of a subsequent disposal or change in control of IMSL or the Project (whereby InfraStrata or InfraStrata UK then lose control of IMSL or the Project) during the two year period, with any such subsequent disposal also triggering a mandatory prepayment of the Loan. The Additional Payment is payable in the above scenarios for the full two year period of the Loan, regardless of whether the Loan has been repaid or prepaid during this period. Notwithstanding survival of the Additional Payment obligation post-repayment or prepayment of the Loan, all security granted in favour of Baron is to be released on the repayment or prepayment of the Loan, leaving the Additional Payment obligation as an unsecured claim.

The Loan is secured by, inter alia: (i) a first-ranking debenture over the undertakings and assets of InfraStrata UK Limited ("InfraStrata UK"), the wholly owned subsidiary of the Company which owns 90% of IMSL; and (ii) charges over shares in InfraStrata UK (granted by the Company) and IMSL (granted by InfraStrata UK). The Loan can be repaid by InfraStrata in full at any time during its term, which would lead to the release of the security arrangements.

The terms of the Loan Agreement contain a number of customary representations and warranties, information undertakings, and general covenants, which include a negative pledge restricting the Company and InfraStrata UK's ability to grant further security over their assets. The terms of the Loan Agreement also impose certain obligations and restrictions on InfraStrata and InfraStrata UK, including, inter alia, restrictions on disposals, acquisitions and joint ventures, further borrowing and guarantees. The Loan Agreement contains a number of events of default, which are summarised below. Should any of these events of default arise, Baron will be entitled to accelerate repayment of the Loan (if it has not already converted to an on-demand facility, as described above) and to seek to take enforcement action under the security granted in its favour.

The Loan Agreement contains a number of events of default, which are detailed further below. Shareholders should be aware that a number of the events of default contained in the Loan Agreement, such as for example the suspension or cancellation of trading of the Company’s ordinary shares on AIM, may be triggered by the action of third parties or circumstances not directly within the Company's control.

In the event that an event of default occurs which cannot be remedied and in the absence of additional financing to allow for repayment of the Loan, then the enforcement of Baron’s security arrangements would likely result in the value attributable to shareholders being severely reduced or potentially becoming nil.

Summary events of default (note, unless otherwise specified, an event of default will arise if any of these events occurs in relation to either the Company or InfraStrata UK):

  1. Non-payment of sums due under the Loan Agreement and security documents;
  2. Beyond a non-payment, there is a breach of any other term of any of the documents entered into with Baron in connection with the Loan;
  3. Misrepresentation in relation to any representation, warranty or statement made in the documents entered into with Baron in connection with the Loan;
  4. Suspension or cessation (or threatened suspension or cessation) of all or a material part of business;
  5. A default under the terms of any other loan documentation entered into with a third party;
  6. Insolvency or any distress, attachment, execution, expropriation, sequestration or other analogous legal process being taken against the Company's assets;
  7. Any of the security granted in favour of Baron becomes enforceable;
  8. All or any part of the documents entered into with Baron in connection with the Loan become invalid, unlawful, unenforceable, terminated, disputed or cease to be effective;
  9. The Company rejects, or shows an intention to reject, the terms of any of the documents entered into with Baron in connection with the Loan;
  10. An event or circumstance arises which Baron (acting reasonably) considers will materially adversely affect the Company or InfraStrata UK's: (i) ability to perform their obligations under the documents entered into with Baron in connection with the Loan; (ii) the enforceability of those documents or the rights and remedies under them; or (iii) their business;
  11. The suspension or cancellation of trading of the Company’s ordinary shares on AIM; and
  12. Qualification of financial statements by the relevant company's auditor.

Certain of the events of default are subject to grace periods during which the Company can seek to cure the relevant default. In addition, a number of events of default are subject to materiality qualifiers and financial thresholds, which must be established if the relevant event is to constitute an event of default.

Background to and reasons for the Loan

The Board has explored various options to secure the necessary funding for the Company’s short to medium term requirements, although as stated in the Company’s announcement of 4 January 2017, prior to the execution of the Loan Agreement the Company’s working capital position was constrained. Given these circumstances, the Board believes that it would not be possible for the Company to raise debt finance without the granting of security arrangements and in the absence of such finance in the short-term the Company would likely not be able to meet its financial commitments as they fall due and consequently may result in an insolvency event. The Board therefore believes that the Loan represents the best opportunity at this time for the Company to raise funds in short order given the circumstances and its strategy.

The Board aims to raise additional finance to repay the Loan before 30 April 2017. However, in the event that the Loan were to convert to an on-demand facility and Baron subsequently demanded repayment of the Loan, then in the absence of additional financing to allow for repayment, the enforcement of Baron’s security arrangements would likely result in the value attributable to shareholders being severely reduced or potentially becoming nil.

As previously announced, the Project has been awarded an EU grant to fund up to 50% of the FEED (the "EU Grant") and been offered conditional secured loans ("Contractor Loans") of, in aggregate, up to £1.1 million from the selected FEED contractors, the latter of which is subject to contract and securing the remaining funding for the FEED. At present, the Contractor Loans cannot be entered into until the Loan’s security arrangements have been released through repayment of the Loan.

At this point and as outlined in the Company’s announcement on 4 November 2016, in addition to the EU Grant and the Contractor Loans, a further amount of £3 million will be required to complete the FEED and commercialisation process on the Project, of a gross £6 million programme which includes funds for corporate overheads, working capital, bridging finance on the EU grant and repayment of the Loan. The bridging finance, which may be in the form of debt, is required to cover the timing of receipt of funds from the European Commission grant which is paid in two stages, with €1.6 million having already been received by the Company but which is not available to meet the Company’s short term working capital needs and can only be deployed in the delivery of the FEED services and is therefore held as restricted cash. The balance of the EU Grant is receivable once the FEED work has been completed.

As referred to in the announcement on 4 January 2017, the Company is continuing to examine its options with its advisers for securing the necessary balance of funding to enable work to commence on the FEED and associated activities, including additional working capital for the Company. The Board has recently engaged with potential investors with a view to securing the £3 million of balance funding and this process remains ongoing.

Further announcements will be made in due course as appropriate.

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04 January 2017 - Funding Update PDF Print E-mail

The Board of InfraStrata plc (AIM: INFA), the independent gas storage company, announces an update in respect of the Company's working capital position and its fundraising activities following its announcement on 4 November 2016 (the “Announcement”).

The Board of InfraStrata plc (AIM: INFA), the independent gas storage company, announces an update in respect of the Company's working capital position and its fundraising activities following its announcement on 4 November 2016 (the “Announcement”).

The Board has recently engaged with potential investors with a view to securing the funding for the FEED and corporate overheads as set out in the Announcement, and this process is ongoing. In the meantime, the Company is in advanced stages of negotiations for potential debt funding to be provided in the short term. The Board currently believes this proposed debt funding will be sufficient, with existing funds, to meet InfraStrata’s minimum levels of corporate costs to the end of 2017, but the progression of the FEED will require the securing of additional funding. It is emphasised that there can be no certainty regarding the timing of the conclusion of any of the Company’s current fundraising negotiations, the terms of such funding and/or whether any new funding will ultimately be secured. Should short-term funding not be forthcoming during January, then the Board will need to consider whether the Company can continue as a going concern.

Further announcements will be made in due course as appropriate.

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08 November 2016 - Holding in Company PDF Print E-mail

InfraStrata plc (AIM: INFA), the gas storage company focused on the UK and Ireland, was informed today that Mr Alan Booth’s shareholding in the Company fell below 3 per cent. as a result of dilution from the issue of ordinary shares by the Company on 27 January 2016 and further, that he no longer has a notifiable interest in the Company’s issued share capital.

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04 November 2016 - Islandmagee project update & Board restructuring PDF Print E-mail

InfraStrata plc (AIM: INFA), the gas storage company focused on the UK and Ireland, is pleased to announce the selection of Front-End Engineering Design (“FEED”) contractors for the above-ground facilities and the sub-surface elements of its Islandmagee gas storage project (the “Project”) and associated loan funding to partially finance the development of the Project. The Company also announces an organisational restructuring and Board changes as part of its development strategy.

Highlights:

  • The FEED contractors have proposed to provide secured loans in aggregate of up to £1m for the FEED process, subject to contract, which will be conditional upon InfraStrata securing the remaining funding for the FEED.
  • The loans will sit alongside the European Union (“EU”) grant for 50% of the FEED costs (paid in two tranches), resulting in approximately 75% of the total projected FEED cost being conditionally funded.
  • To complete the FEED and commercialisation process and provide bridge finance between the two EU grant tranches, as well as working capital for the Company during this phase, will require a further £3m of funding which the Company is seeking.
  • Restructuring of InfraStrata’s Board from January 2017, to focus on the next phase for the Company and Project.
  • InfraStrata will re-locate to Belfast, minimising corporate overheads and enabling dedication of all resources towards bringing the Project to construction.

Selection of Front-End Engineering Design contractors

Following the completion of a tendering process, InfraStrata is pleased to announce that it has selected FEED contractors for the Project’s above-ground facilities and for the sub-surface elements. The FEED will include a detailed plant design specification for the Project, a detailed project plan and cost estimate. The aim is for the FEED contractors to complete their work by the end of 2017 so that should funding then be forthcoming, the Project is ready to move to construction.

Both the FEED contractors have an international reputation and have both worked on many of the existing salt cavern storage projects in the UK.

Associated new secured loan funding arrangements and remaining funding requirements

One of the criteria of the tender process to select FEED contractors was for prospective contractors to show a flexible approach and a willingness to share risk and reward. InfraStrata is pleased to announce that it has agreed to put in place secured loan arrangements by which both FEED contractors will each provide loans to the project company, Islandmagee Storage Limited (“IMSL”), in aggregate of up to £1m against a total anticipated FEED budget of £4m (the “Loans”). The Loans, which are subject to contracts being agreed, will be repayable at the Final Investment Decision (“FID”), when a decision will be made whether to proceed to construction, or on 31 December 2018, whichever is earlier. The Loans will be secured on the assets of IMSL and attract interest at 10 per cent. per annum, which will be rolled up and paid on the Loan repayment date. The FEED contracts and the Loans will be conditional upon securing the remaining funding for the FEED. The Loans, alongside the EU grant for 50% of the FEED costs announced in June 2016, will result in approximately 75% of the total projected FEED cost being conditionally funded.

At this juncture, in addition to funding from the EU and the Loans, a further amount of approximately £3m will be required to complete the FEED and commercialisation process, inclusive of corporate overheads, working capital and bridging finance on the EU grant. The bridging finance, which may be in the form of debt, is required to cover the timing of receipt of funds from the European Commission grant which they pay in two stages: €1.6m of EU grant monies has already been received by the Company with the balance receivable once the FEED work has been completed, which is targeted for the end of 2017.

The Company is examining its options with its advisers for securing the necessary balance of funding to enable work to commence on the FEED in the shorter term and ideally by this calendar year end. Further announcements in this regard will be made as appropriate.

Recent progress and restructuring proposals to meet future requirements in the next phase of the Project

Significant progress has been made on the Project during 2016, including further stakeholder engagement, investing in the land assembly for the Project, securing the supply chain for the FEED, securing the EU grant, conducting a monetisation process and, with input from the monetisation process, developing the parameters and phasing of the Project to meet expected future market demands.

Plans are now being developed to restructure the teams at InfraStrata and IMSL in the coming months to match the skill requirements for the next phase of the Project, as well as to appoint necessary advisers and technical consultants.

The Board of InfraStrata will be geared towards regulatory and corporate governance matters, with a focus on securing the funds to develop the Project. As part of this focus and to minimise corporate overheads, InfraStrata will re-locate to Belfast in January 2017, with all of its resources being dedicated to bringing the Project to construction. Andrew Hindle will step down from his role as CEO of InfraStrata effective 1 January 2017, but will remain a Non-Executive Director of the Company. Andrew, a Chartered Geologist, will continue to advise on the Project in a technical capacity. Stewart McGarrity, current Financial Director and Anita Gardiner, current Commercial Development Director, will become Joint Managing Directors, bringing vital and complementary skills required for the execution of the next phase of the Project.

Stewart McGarrity has extensive and broad experience in senior financial and commercial roles for major global infrastructure projects, including working on the construction and development of the Hong Kong International Airport. Anita Gardiner has been managing the Project since joining InfraStrata in 2014 and previously held various project and managerial positions with BP in the UK and India, most recently as Business Development Manager for BP Gas Marketing where she had responsibility for asset development and origination activities across Europe.

Background on monetisation of the Project

As previously announced, the Company’s strategy has been to seek funding arrangements during 2016, in order to commence a FEED and commercialisation process by calendar year end.

During 2016 the Company organised an extensive monetisation process through Centrus Advisors LLP and VSA Capital Ltd, both having been appointed in March 2016. A wide range of options were explored, from investment into the Project alongside the EU grant, risk sharing with contractors, or the sale of the entire Project to a third party.

As a result of the findings from this process, together with the positive changes in the fundamentals of the gas storage market and the supportive Competent Person Report announced in October 2016, the Board decided to restructure its business with the goal of attracting the remaining risk capital required to take the Project through to FID. The restructuring has included increasing InfraStrata’s equity position from 65% to 90% in IMSL and seeking to divest all the Company’s other remaining business interests, as announced in September 2016.

As part of a commercialisation process to run alongside the FEED in 2017, InfraStrata will seek to secure capacity contracts to support further project finance. During the monetisation process, the Company had a number of discussions regarding the Project with interested parties. The feedback at that time with respect to investment in gas infrastructure was that it would be preferable for the FEED to be completed and for the Project to have sufficient certainty with regards to revenues, including contracted revenues where possible, in order to support the additional project finance that would be required.

The proposed new Loans from the FEED contractors will be an important component alongside the EU grant funding in supporting the Project to reach FID and thereby enable the Project to proceed thereafter to full construction at a currently estimated cost of approximately £300m. The Directors of InfraStrata believe that proceeding with the Project to FID will provide InfraStrata with a greater number of monetisation options in the future, with such options having the potential to optimise the return to shareholders.

Commenting, Ken Ratcliff, Chairman of InfraStrata, said:

" The Board of InfraStrata is delighted to have secured world leaders in the provision of engineering services to gas storage projects for the next stage of the Project. The risksharing approach of the contractors as technical experts is very welcome and shows a shared belief in the delivery of the Islandmagee project.

The increased emphasis on using renewable generation and the ongoing issues prevailing at existing, ageing, gas storage facilities in the UK, reinforces the existing fundamentals that support our commitment to develop this project. To meet the Project’s demands, we are fully focused upon identifying the specific skill sets required, whilst keeping corporate overheads to a minimum. The relocation to Belfast and the proposed Board changes are designed to achieve these goals to maximum effect at minimum cost."

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21 October 2016 - CPR of the gas storage market and economic model for Islandmagee PDF Print E-mail

InfraStrata plc (AIM:INFA), the gas storage company focussed on the UK, is pleased to announce the publication of a competent person report (the “Report”) on the gas storage market in the UK and a review of the revenue assumptions for InfraStrata’s economic model of the Islandmagee gas storage project (the “Project”) by The Energy Contract Company (“ECC”), a leading commercial consultancy in the global oil and gas industry.

The full report titled “The gas storage market in the UK and review of revenue assumptions in economic model for the Islandmagee gas storage project” will be available shortly on the Company’s website, www.infrastrata.co.uk, with a summary of its findings below.

The revenue model for the Project was based on assumptions of volatility and summer-winter price spreads by Baringa Partners (“Baringa”), an independent business and technology consultancy, for InfraStrata. ECC concluded that the underlying assumptions in the Baringa model are reasonable.

This revenue model formed the basis for InfraStrata determining the Project’s cashflow over a 20 year period. InfraStrata’s economic model assumes a capital expense and pre-operations operating expense of £308m in aggregate, utilising 65% debt. InfraStrata has estimated the net present value (NPV) of the Project to be £67m at an 8% discount rate and £38m at a 10% discount rate. ECC has not reviewed these NPV estimates.

The report was commissioned as part of the Company’s strategy to seek funding arrangements to sit alongside a grant of up to €4.024m from the EU in order to commence a Front-End Engineering Design (FEED) and commercialisation process by year end, and in order to proceed to a Final Investment Decision (FID) for the Project in late 2017.

Commenting, Andrew Hindle, CEO of InfraStrata said:

" With the majority of UK gas storage in two ageing facilities, the Board of InfraStrata considers it imperative for new investment in modern flexible facilities in the UK in order to meet the gas demands of the future. Gas is assuming an important role in supporting renewable generation in the UK, whilst it continues to heat the nation, provide energy for cooking and contributes to wider lower carbon transportation in the form of Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG). The Report convincingly confirms our beliefs.

The Report by ECC is third party confirmation for what are attractive revenue assumptions for the Project and these revenues demonstrate the potential value of the project."

The executive summary points in the Report are as follows:

  • Most gas sold in the UK is used for space heating, so demand has always varied significantly from day to day, due to temperature variations. In future these short term variations in demand should become significantly greater. UK Government energy policy now emphasises the need to replace power generation from fossil fuels with electricity generated from renewable sources, such as wind. As wind does not blow every day, gas fired generation will have to make up the deficit. Short term gas demand levels will therefore vary increasingly, depending on whether the wind is blowing or not.
  • Many of the traditional means of meeting peak gas demand such as swing from offshore fields and interruptible gas sales contracts have almost disappeared now, but have been replaced by other sources of peak supply, such as pipeline gas imports from the rest of Europe and LNG imports. However, there are some drawbacks to reliance on these sources in future. Historic data shows gas suppliers in the rest of Europe are reluctant to supply the UK in cold winter conditions, if it means that they might be short of gas themselves. There are also problems with LNG as a source of peak gas, as the long-time lags for the delivery of LNG cargoes mean that it is difficult for LNG producers and traders to react to high prices in the UK market, which might have collapsed by the time a cargo arrives in the UK.
  • In the rest of Europe the traditional means of supplying supplementary gas to meet peak demand was to use gas storage, although this was always less common in the UK. Gas storage levels in the UK are very low compared to the rest of Europe. Average storage capacity is only equivalent to 6.4% of annual demand in the UK compared to 25-35% in the other major markets in Europe.
  • The problem in the UK has been exacerbated by recent technical problems on the Rough storage facility, which has severely restricted injection this summer. There have also been problems on the Hornsea storage facility. Both of these facilities, which account for almost 75% of UK gas storage capacity, are now over 30 years old and their continuing availability in the longer term must be subject to some doubt.
  • The cessation of injection at Rough this summer seems to have led to a surge in price volatility from late August onwards. From October 2013 to July 2016 the Short term Gas Volatility Index averaged 34%. However in the last month or so this has more than trebled to 126%. This surge in volatility has potentially great significance for the Islandmagee project. Salt cavern storage projects such as Islandmagee depend on short term volatility to enable the users to gain from injecting gas on low price days and producing later on when prices have risen. The greater the volatility the more profitable the project.
  • Overall the conclusion is that due to the increased use of renewable generation, gas demand will become even more variable on a short term basis in future. The existing means of meeting this variation in demand may well be inadequate in future, so price volatility is likely to increase in future and could increase significantly.
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