Financing & Liquidity
06.02.13 06:20

CFO interview: Jonathan Swinney, EnQuest

EnQuest CFO Swinney Issues First Industrial Retail Bond

By Steven Arons

Oil production company EnQuest, a FTSE 250 constituent, has become the first industrial company to tap the UK's thriving retail bond market. Priced at 5.5%, the bond provides CFO Jonathan Swinney with unsecured, long term liquidity to finance the technologically challenging oil extraction activities at the bottom of the North Sea.

EnQuest CFO Swinney Issues First Industrial Retail Bond


EnQuest CFO Swinney has raised £100 million through a retail bond to fund capex in the North Sea.

The world of finance is changing fast, and one of the fastest changing areas is the UK corporate finance space. For over a year now, CFOs have been seizing on the ultra-low interest rates and investment appetite among investors to issue retail bonds in droves.

The latest case in point is Jonathan Swinney. The CFO of oil production company EnQuest is in the final days of issuing the company's first retail bond, also the first issued by a UK industrial company. He says the retail bond market has "matured" to the point that sizeable amounts can be raised on the capital market. EnQuest expects the bond to raise at least £100 million.

Retail bonds are flying off the shelf

The UK retail market was brought into existence by the London Stock Exchange's decision to create an order book for retail bonds. Since then, the securities have been flying off the shelves, with companies issuing an overall volume of £1.2 billion in 2011. Late in 2012, the LSE issued a retail bond itself, which not only raked in £300 million but also achieved the feat of a coupon below the magical 5% threshold.

Swinney says that investors have been attracted to EnQuest's bond by the company's "very strong cash flows underpinned by production and by oil reserves in the ground." Given that, thus far, most retail bonds have been issued by real estate developers such as Workspace Group, investors were also looking for diversification, he adds.

A premium for longevity

EnQuest pays a coupon of 5.5%, which compares with an interest rate of 225 basis points (bps) over Libor for a recently signed credit facility. "Since 1 month dollar Libor is around 25bps now, that's a total cost of 2.5% at the moment" for the loan, Swinney says. The premium – which will narrow once Libor begins to move up – was necessary to compensate investors for the longevity and the fact that the bond is unsecured. The bond has a maturity of 9 years, compared with 4+1 years for the facility.

Instead of collateral, the bond comes with two covenants, a net debt to Ebitda cap and an Ebitda to financial charges cap, the second of which, at 4x, is actually more generous than in the bank loan at 5x. "We don’t anticipate we'll get anywhere near this," Swinney says. "I'm quite happy with this kind of covenant."

EnQuest will use the money to expand its North Sea-focused oil production. Though Swinney does not give any guidance on 2013 capex before the company's annual results presentation at the end of February, he does rattle off a long list of oil fields that EnQuest will expand or drill in over the course of the year.

This is the first part of a two part interview.


Jonathan Swinney qualified as a chartered accountant with Arthur Andersen in 1992 and is a member of the ICAEW. In 1998 he joined Credit Suisse First Boston and later moved to Lehman Brothers. He joined Petrofac Limited in April 2008 as head of mergers and acquisitions for the Petrofac Group, joining EnQuest PLC in 2010 as CFO.

EnQuest is an independent oil & gas development and production company, listed on the LSE and Nasdaq OMX Stockholm, with a geographic focus on the UK continental shelf. At half year 2012, it produced 20,000 barrels of oil equivalent per day, generating revenues of $936 million and EBITDA of $629 million in the year 2011.

Correction: An earlier version of this article stated the bond was priced at 4.5%. It is priced at 5.5%.

From the archive

Retail Bonds to Take Off for All CFOs

A wave of retail bonds has attracted considerable attention from banks and chief financial officers alike. Although industrial companies have remained on the sidelines so far, this is about to change, says Lloyd’s retail bond team. Chief financial officers looking to diversify their funding should listen but must consider future before tapping retail investors.

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Workspace Group has become a member of a growing group: issuers of UK retail bonds. Speaking to CFO Insight, CFO Graham Clemett extols the long maturity and flexibility offered by the security but warns of black sheep that could yet deliver a blow to the fledgling market.

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