Breitburn Energy Partners bonds rose on Monday after the oil-and-gas exploration-and-production company said it had secured a $1 billion investment from EIG Global Energy Partners, making it the latest in a growing list of energy companies that are taking steps to preserve liquidity amid slumping oil prices.
Breitburn Energy 7.875% notes due 2022 were up five points this morning, at 75/76. Though still down from the 90 context prior to OPEC’s decision in November, the notes are now 15 points off record lows in January.
The company said in a press release on Sunday that it would sell $350 million of perpetual convertible preferred units and $650 million of senior secured notes in a private offering to investment funds managed by EIG and other purchasers.
BreitBurn was forced to shelve plans to offer $400 million of 8.5-year senior notes late last year as market conditions became increasingly adverse for energy producers. Price talk on that deal, which was intended to fund an RC-repayment effort, was in the 8.25% area.
The $650 million issue of senior secured notes will pay 9.25% and mature in 2020. The notes will be secured on a second-priority basis and will be effectively subordinated to Breitburn’s credit facility, but senior to Breitburn’s existing 2020 senior notes and 2022 senior notes and any existing and future unsecured indebtedness to the extent of the value of the collateral securing the senior notes.
Proceeds from the deal are expected to repay borrowings under its credit facility, resulting in net borrowings, at closing, of approximately $1.24 billion. Breitburn is amending its credit facility to allow for the issuance of the senior notes and to establish a revised borrowing base of $1.8 billion through April 2016. According to a 10-K filing, the company had a borrowing base of $2.5 billion as at Dec. 31, 2014 and approximately $2.2 billion in borrowings under its credit facility.
The Series B convertible preferreds, meanwhile, will be issued at a price of $7.50, representing a premium of approximately 27% to Breitburn’s common unit closing price on March 27, 2015.
In addition, Breitburn said it intends to reduce its common distribution to $0.50 per unit, having already slashed its distribution by 50% to $1 per unit in January. Shares in the name fell 5%, to $5.60, by mid-morning.
Previous steps taken by the company to preserve liquidity include reducing its capital spending to $200 million, from $600 million, and reducing planned distributions to unitholders to around $200 million, from $400 million.
Jefferies LLC is serving as lead placement agent and sole financial advisor to Breitburn, and Credit Suisse is serving as financial advisor to EIG.
Los Angeles-based BreitBurn is an independent oil-and-gas company with properties in Michigan, California, Wyoming, Florida, and Kentucky. The B+/B1 company trades on the Nasdaq under the symbol BBEP, with an approximate market capitalization of $1.24 billion. – Rachelle Kakouris