Why are we talking about refinancing the recent notes?

The rates that dropped today were the US Fed Rate .75% and the Bank of Canada overnight rate .25% 

Both of these rates are short-term and are more symbolic than anything else and are not rates that are available to corporations.  The purpose of the cuts is to encourage banks to reduce their various rates in order to stimulate the economy.

None of this has any bearing on the $600 million US, 8 year, 10.25 % notes that Connacher recently issued.  If you read the announcement below, you will see that Connacher arranged this sale through brokers, who then sold the notes to investors.  Connacher only received cash amounting to $571 million.  The difference (600-571) of $29 million was $8 million because the notes were sold below par value and $21 million paid to the various brokers who put the deal together to cover their commissions and expenses.  The full details of the notes were not disclosed and there may be some provision for early payment of the notes prior to December 2015.  If there is, you can be sure that there will be a penalty for early payment.

In my opinion, these notes will not be paid off, and a new set of notes sold at a better rate, unless it is several years from now when increased production makes Connacher a better risk and able to secure much lower rates.  In the meantime, we are holding cash that is costing us $60 million a year in interest while we are likely earning less than half that amount in interest.  The sooner we get approval for Algar the better so we can put the money to work.  By the time Algar is in full production, in 2010, we will have spent $180 million in interest.  We are paying a hefty penalty to know that we have the funding in place for the next stage of development.

December 7, 2007 Announcement

Calgary, Alberta - Connacher Oil and Gas Limited (CLL - TSX) announced today it has completed and closed the sale of US$600 million face value of 10.25% Senior Secured Notes due December 15, 2015 ("Notes"), at a price of 98.657%, resulting in a yield to maturity of 10.50% and gross proceeds of approximately US$ 592 million. The Notes were resold through a syndicate of investment banks including Credit Suisse, RBC Capital Markets and BNPParibas as Joint Book Running Managers and Fortis Securities, HSBC and TD Securities as Co-Managers to certain institutional investors pursuant to applicable securities law exemptions.

Using the closing exchange rate of US$1.00 = C$1.00, the net proceeds to Connacher from the sale of the Notes (after deducting the estimated costs of the transaction) will be approximately C$571 million.

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The other $200 million 5 year revolving credit facility, that was arranged at the same time as the notes were issued, may be able to take advantage of declining rates, if Connacher needs to dip into these funds.  Usually the rate for this type of financing is based on a percentage over the then current bank rate. 

Just my opinion,

XBB