UPDATE:Energy Sector Issuance Galvanizes High-Yield Bond Market
September 08 2010 - 5:24PM
Dow Jones News
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).
Reliant (NYSE:RRI)
Historical Stock Chart
From Aug 2024 to Sep 2024
Reliant (NYSE:RRI)
Historical Stock Chart
From Sep 2023 to Sep 2024