SandRidge Energy Inc. (NYSE: SD) has entered into privately negotiated purchase and exchange agreements under which it will repurchase $250 million aggregate principal amount of its senior unsecured notes for $94.5 million cash and exchange $275 million of notes into new convertible notes.
James Bennett, president and CEO, commented, "This represents a significant first step in reducing SandRidge's debt and improving our balance sheet. In this transaction, we addressed $525 million of senior unsecured debt, by repurchasing senior unsecured notes at a substantial discount to face value, also immediately eliminating approximately $19 million in annual interest expense, and modifying additional outstanding debt to convert into equity at a significant premium to the current share price."
Specifically, the company will repurchase $29.3 million aggregate principal amount of its 8.75% senior notes due 2020, $111.6 million aggregate principal amount of its 7.5% senior notes due 2021, $26.1 million aggregate principal amount of its 8.125% senior notes due 2022, and $83.0 million aggregate principal amount of its 7.5% senior notes due 2023 for an aggregate of $94.5 million in cash.
The company will exchange $15.9 million aggregate principal amount of the 2020 outstanding notes, $40.7 million aggregate principal amount of the 2021 outstanding notes, $101.8 million aggregate principal amount of the 2022 outstanding notes, and $116.6 million aggregate principal amount of its 2023 outstanding notes for $158.4 million aggregate principal amount of its new 8.125% convertible senior notes due 2022 and $116.6 million aggregate principal amount of its new 7.5% convertible senior notes due 2023.
Subject to compliance with certain conditions, the company has the right to mandatorily convert the new convertible notes, in whole or in part, if the volume weighted average price of the company's common stock exceeds 40.00% of the applicable conversion price of the new convertible notes (representing an initial VWAP threshold of $1.10 per share) for at least 20 trading days during the 30 consecutive trading day period and the company delivers a mandatory conversion notice.
In addition, SandRidge and its banks amended its first lien revolving credit agreement to facilitate the repurchase and exchange transactions.
SandRidge Energy ended the first quarter with $4.4B in debt ($3.4B net debt), Global Hunter Securities analysts said in a note to investors Monday, continuing that “pro forma for these transactions, the debt level now stands at $4.1B ($3.3B net debt).”
With the announced transactions, the analysts updated estimates for the company. “As a result of lower interest expense, our 2015 EPS/CFPS/EBITDA estimates move to ($0.32)/$0.52/$545.5MM from ($0.33)/$0.51/$545.5MM. We view this transaction as a positive step in repairing the balance sheet but still see plenty of work to do on this front and thus maintain our Sell rating and $0.25 target at this time,” they said.