TUWLF - Tullow: Big Bond Bath

• Tullow has launched a massive bond fund-raising in an attempt to plug the gap left by the apparent cancellation of its reserve based lending facility and its maturing convertible.
• A $1.8bn bond issue would appear to have questionable asset cover given Occidental's rumored sale of Ghana assets for $500m. Equity holders are thus unlikely to realize much value.
• We believe the bond launch is a last ditch move to avoid a cross default on the debt based on the 30 day default cure period on a key covenant.
• Whatever the glide path, we believe equity holders will still end up carrying the bag, facing ever higher financing costs and falling production.
• Even if the near-term credit trigger is removed (and it may yet not be), we remain short the stock and reiterate our bearish case from our previous article.

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