UPDATE:Energy Sector Issuance Galvanizes High-Yield Bond Market

The energy sector produced a battery of high-yield debt offerings Wednesday, with multiple new issues to raise cash to pay down debt and fund mergers and acquisitions.

Linn Energy, LLC (LINE), Exco Resources Inc. (XCO), Chaparral Energy, Mirant Corp. (MIR) and RRI Energy Inc. (RRI) all came to market with note offerings. The deals come amid a wave of merger and acquisition activity in the energy sector, as slumping energy prices have led firms to consolidate in an effort to cut costs and boost earnings.

"The energy sector has been a favored industry for the market for much of the year, and it's a very capital-intensive industry so there are a lot of funding needs there," said Ken Austin, senior credit officer at Moody's Investors Service. "They're coming to market now and taking the money at very attractive rates."

The deals brought the post-Labor Day wave of corporate bond issuance to the high-yield market, one day after investment-grade companies sold $15.5 billion in new bonds, the highest single-day total since February. Investors have been flocking to corporate debt at a time when stocks and Treasurys have offered paltry returns.

Linn and its and its subsidiary Linn Energy Finance Corp. sold $1 billion--increased from an initially announced $750 million--of senior unsecured 10.5-year notes to yield 8% via joint bookrunners Barclays, BNP Paribas, Citi, Credit Agricole, RBC, RBS and Wells Fargo, according to a person familiar with the deal. The company said it will use the majority of proceeds to reduce debt under its revolving credit facility, with a portion of the proceeds used to unwind certain interest rate derivative contracts.

The natural-gas independent, which has been expanding away from its primary holdings in the Appalachian basin, on Tuesday said it had signed three different agreements to buy oil and natural-gas properties in Texas for a combined $352.2 million. The company said it planned to fund the acquisitions through its credit line. In July, Linn paid $95 million to buy properties in Texas, and in March it said it would pay $330 million to acquire tracts in Michigan as shale plays remain a hot sector.

Mirant and RRI, which are merging into a new company to be called GenOn Energy, Inc., said they will commence syndication of a new $500 million senior secured term loan along with a $1 billion revolving credit facility. The company also announced a concurrent senior unsecured bond offering, expected to weigh in around $1.4 billion.

The companies essentially have to come to market because they have $1.8 billion of debt in need of refinancing due to change of control provisions, which allow existing bondholders to force the company to buy back bonds in the event of a merger, according to Andrew DeVries, analyst with research firm Credit Sights.

"The key is, they are replacing secured subsidiary debt with unsecured parent debt," DeVries said. "They also have several months to get this done so the timing suggests they are taking advantage of the very attractive interest rates being offered right now from the massive inflows to bond funds, especially high yield ones."

Exco Resources--an oil and natural gas exploration, exploitation, development and production company headquartered in Dallas, Texas with principal operations in East Texas, North Louisiana, Appalachia and West Texas--is offering $750 million of senior notes due 2018. A portion of net proceeds will go toward redeeming all $444.7 million outstanding of Exco's 7.25% senior notes due 2011, with the remainder to pay down outstanding bank debt.

J.P. Morgan Securities LLC, Banc of America Securities LLC, BNP Paribas Securities Corp., RBC Capital Markets Corporation and Wells Fargo Securities, LLC are joint book-running managers for the bond offering, which is expected to price later this week.

Chaparral Energy is in the market with $300 million in senior unsecured 10-year notes via J.P. Morgan, with proceeds to pay down existing debt. That deal is also expected to price later this week. Chaparral is an independent oil and gas producer and operator headquartered in Oklahoma City, Okla.

-By Michael Aneiro, Dow Jones Newswires; (212) 416-2203; michael.aneiro@dowjones.com

(Tess Stynes also contributed to this article).

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