SM Energy issues $500M senior notes due 2026

Subject to market and other conditions, Denver, CO-based SM Energy Company (NYSE: SM) intends to offer $500 million in aggregate principal amount of a series of senior unsecured notes due 2026.

The company intends to use the net proceeds from the offering to pay a portion of the purchase price for its recently announced acquisition of all of the outstanding membership interests of an entity holding undeveloped leasehold interests, producing wells and associated infrastructure assets in the Midland Basin of west Texas from Rock Oil Holdings LLC, and for general corporate purposes. If this acquisition does not close, SM Energy intends to use the net proceeds for general corporate purposes.

As Raymond James analysts see it, the transaction is the company’s way of “securing higher working interest and a lower cost structure over the long-term as it develops the Howard County asset.”

With equity and the issuance of convertible notes, SM Energy put up $680 million of the $980 million purchase price of the aforementioned acquisition, the analysts said, noting the remaining purchase price would be funded once SM Energy sold non-operated Eagle Ford assets.

“SM is still shopping for buyers of its non-operated Eagle Ford asset,” the analysts noted, “and we do not believe today’s news is any indication of the interest the company is getting for this asset.”

BofA Merrill Lynch, JP Morgan and Wells Fargo Securities are acting as joint book-running managers for the offering. The notes are being offered and will be sold pursuant to an effective shelf registration statement that was previously filed with the Securities and Exchange Commission. This offering is being made only by means of a prospectus dated August 8, 2016 and related prospectus supplement dated September 7, 2016.

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