Frontera in dispute with Yorkville Adviser fund over loan conerns

Frontera Resources is locked in a dispute with investment company Yorkville Advisors after raising serious concerns over the validity of the Cayman Islands-based group's calculations.

Frontera had agreed in June that the remaining $2.89m of convertible shares held as part of a loan provided by Yorkville's YA II PN fund would be redeemed on a monthly basis, for which the company would make cash redemption payments to YA of $265,000 per month or for Frontera to convert redeemable Series A shares into ordinary shares, at its option, or pay down in cash the entire redemption amount for the outstanding number of Series A shares at any point.

After receiving a conversion notice for 241 convertible shares from YA II PN on 24 August, despite Frontera holding a notice that stipulated the number of ordinary shares to be issued following conversion was more than 82.07m, the AIM-listed exploration and production company launched an investigation into its partner's actions.

Frontera's legal advisers contacted YA II PN to inform the group of its "serious concerns" to the validity of its conversion notices and that it did not consider it to be appropriate to action any further conversion notices pending further investigation.

Frontera then received a notice of default from YA II PN, stating that its failure to convert preferred shares in accordance with their deal constituted a "triggering event". YA II PN then demanded the redemption of 2,650 preferred shares at a liquidation amount of $2.65m.

Frontera said: "The company vigorously disputes the validity of both the conversion notices and the purported default notice, and is continuing to investigate YA II PN's actions in that regard. The company is unable to comment further at this time pending further investigation with its advisers and the receipt of legal advice."

As of 0845 BST on Monday, Frontera shares tumbled 11.16% to 0.31p.

"It’s been a long summer and one in which the company has made zero progress anywhere," said analysts at SP Angel, "in fact, every well intervention appears to result in more questions than answers, and every announcement appears only to sow confusion."

Falling out with its funding party "sounds like déjà vu", the analysts said, when it tried to escape its obligations under its convertible debt, but noting that Yorkville "has a long history of execution of these plans, and we would be very surprised if it has got it wrong".

"Given the management style at FRR, we would put greater stock on it being management’s failure to understand the obligations of the loan instrument - but so long is that list now, does it really matter? We keep coming back to the fact that the basics in this company are lacking. No technical experience at board level, or appropriate experience at any level, to undertake a strategic review of the asset base, hence a lack of understanding as to what to do next."