SandRidge begins buy back, exchange of $400M of senior notes

SandRidge Energy Inc. (NYSE: SD) has entered into privately negotiated purchase and exchange agreements under which it will repurchase $100 million aggregate principal amount of its senior unsecured notes for $30 million cash and exchange $300 million of senior unsecured notes into convertible notes.   

The company will repurchase $2.2 million aggregate principal amount of its 8.75% senior notes due 2020, $46.6 million aggregate principal amount of its 7.5% senior notes due 2021, and $51.2 million aggregate principal amount of its 7.5% senior notes due 2023 for an aggregate of $30 million in cash. 

The company will exchange $6.6 million aggregate principal amount of the 2020 outstanding notes, $189.3 million aggregate principal amount of the 2021 outstanding notes, $73.5 million aggregate principal amount of the 8.125% senior notes due 2022, and $30.6 million aggregate principal amount of its 2023 outstanding notes for $269.4 million aggregate principal amount of its 8.125% convertible senior notes due 2022 and $30.6 million aggregate principal amount of its 7.5% convertible senior notes due 2023. The proposed additional 2022 convertible notes and 2023 convertible notes will be issued as part of the respective outstanding classes of 2022 convertible notes and 2023 convertible notes that were originally issued by the company on Aug. 19.

While the company has repurchased $100 million in debt for a significant discount, “when one adds the $78 million in debt for the Pinon transaction the debt level essentially remains flat around the $4.1 billion level,” noted Wunderlich Securities analysts in a note Friday morning.  

“The biggest move from SD, from a dollar perspective, comes in the exchange of unsecured notes for convertible notes. With its need to conserve cash, we think SD has taken a stance of using its convertible notes as a way to reduce debt under the guise that it could eventually turn to equity at over five times the current share price. As such, the company swapped $300 million of unsecured notes for $300 million of convertible notes as it continues to tinker with the balance sheet,” the analysts continued.

“We think the moves make sense, but, given the ample debt level and sizeable interest payments, we feel more, and bigger, deals are necessary and the use of cash in these deals does cause some concern. These moves are incrementally helpful to the company and the balance sheet, but could dilute shareholders, and additionally they use about $80 million of cash that ultimately is a scarce resource. As such, we think SD needs to look toward bigger deals, but the cash situation could hamper this currently,” they concluded.

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