PrecisionPrecision

An Alberta investment manager linked to the provincial government has come to the aid of a prominent oilfield service company, buying $280 million worth of debt and equity in Precision Drilling Trust of Calgary.

Precision will use the money, as well as up to $103 million from a planned rights offering, to pay down a $296-million US bridge loan that carries a 17 per cent interest rate. Precision borrowed that money to buy U.S. oilfield services company Grey Wolf Inc. in December, the Calgary company said Monday.

The financing with Alberta Investment Management Corp. (AIMCo.) and an unrelated deal in February will save Precision $70 million Cdn a year in interest charges, the company said in a news release.

AIMCo., with $72 billion in assets under management at the end of 2008, is a Crown corporation that manages Alberta public sector pension funds and government investment money. Nine of its 10 directors come from the private sector, and one from the government.

Precision units fell 40 cents to $4.52 in TSX trading. AIMCo. is paying $3 for each unit, while the close on Friday was $4.92. The deal also involves a further issue of units at $3 each.

Precision sees AIMCo. as a long-term partner, and its $280-million investment validates the company's strategy, said Kevin Neveu, president and CEO of Precision Drilling Corp., which administers the trust.

The financing "removes many of the uncertainties associated with the trust's existing credit situation" by reducing debt and the average interest rate the trust is paying, he said.

Precision bought Grey Wolf after upping its bid four times, finally paying nearly $2 billion in cash and stock for the U.S. company.

Investment analyst Mike Mazar with BMO Capital Markets said the deal is good for AIMCo., but not for shareholders in Precision. They would have done better if the company has waited for the unit price to move up.

Precision is issuing units "at about a 39 per cent discount to what the closing price was on Friday," he said.

AIMCo. is buying:

  • Senior unsecured notes valued at $175 million, paying 10 per cent interest.
  • Thirty-five million units at $3 each for a total of $105 million.

It will also get 15 million warrants entitling it to buy one unit for each warrant at $3.22 each for five years.

The trust also plans a rights offering to raise up to $103 million by allowing all unit holders, including AIMCo., to buy units at $3 each based on their proportionate stake in the trust.

AIMCo. will hold about 15 per cent of the units when the deal closes.

The $3 price was the unit's market price on March 17, when AIMCo. decided to invest.

AIMCo. manages money for Alberta public sector pension plans and provincial endowment funds, and certain specialized government funds.