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Cardinal cancelled its dividend in March and also sought extensions on various tranches of its debt, which continues to sit at $204 million as of Sept. 30. Lenders also cut its credit facility by $100 million over the course of the year to $225 million.
Despite Cardinal’s challenges, Edwards’ investment in Cardinal may have a “Warren Buffett effect” on the stock and in the wider junior energy space, said Michael Zuk, managing partner at Athena Capital Markets in Calgary.
“If someone who’s a billionaire like Murray Edwards steps forward, there’s going to be generalists that follow suit. I expect other juniors to catch a bit of a rally off of this,” Zuk said, adding that “deep value” stocks in the energy sector are beginning to come back into favour.
In addition, Zuk said Monday’s debt-raise with Edwards shows the continued challenges that smaller oil companies have raising money.
If someone who’s a billionaire like Murray Edwards steps forward, there’s going to be generalists that follow suit
Michael Zuk, managing partner, Athena Capital Markets
Most small- and mid-cap oil and gas companies are now being forced to agree to terms on debt financing deals with a double-digit interest rate and, usually, a sweetener like the option to convert their debt into equity.
“What I’ve been telling every issuer that I speak with is the cost of capital is still quite high for juniors,” Zuk said, adding that’s the case with Cardinal as well, where the debt offering has a 12 per cent interest rate and provides options on the shares.
One other condition of the financing required directors of the company to buy up the remaining $4-million worth of notes that Edwards didn’t buy.
The company’s board of directors includes John Brussa, partner and chair at Burnet, Duckworth and Palmer LLP — which is the law firm where Edwards practiced law before launching various companies.
Brussa also sits on the boards of TORC Oil and Gas Ltd. and Storm Resources Ltd. and is chairman of Crew Energy Inc.
Financial Post
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