American Energy Bonds Said to Be Sold as Soon as Tomorrow

American Energy Partners LP, the oil-and-gas venture run by former Chesapeake Energy Corp. Chief Executive Officer Aubrey McClendon, provided yields at which underwriters may offer its planned $1.4 billion of debt, according to two people with knowledge of the matter.

Floating-rate notes due 2019 may pay 650 basis points more than the London interbank offered rate, and the debt would be offered at 99 cents on the dollar, increasing the yield for investors. The company also plans unsecured notes due in 2020 that may yield 7.25 percent, and securities maturing the following year would pay in the 7.5 percent range, with both securities issued at par, said the people, who asked not to be named because the syndication is private.

Libor, the rate at which banks say they can borrow from each other, was set at 23 basis points today. A basis point is 0.01 percentage point.

Pricing is expected as early as tomorrow, said one of the people. Goldman Sachs Group Inc. is leading the offering.

The notes are rated Caa1 by Moody’s Investors Service and CCC+ by Standard & Poor’s.

Michael DuVally, a spokesman at Goldman Sachs, and Steven Lipin, an American Energy spokesman at Brunswick Group LLC, declined to comment on the bond offering.

‘Tremendous Loophole’

The reception for a junk offering from an unproven business indicates the frothiness of the current debt capital markets, where investors struggle to find yield in a low-interest-rate environment. Yields on all securities with CCC+ ratings in the Bloomberg High Yield Index are 7.18 percent, or 4.71 percentage points more than similar-maturity Treasury bonds, down from 8.33 percent and 6.23 percentage points a year ago.

Agreements governing the new bonds contain “a tremendous loophole that would technically allow the company to incur uncapped amounts of debt” that would potentially be senior to the notes, Anthony Canale of Covenant Review LLC wrote in a July 14 report.

The borrowings would make Oklahoma City-based American Energy Partners the most highly leveraged energy exploration company, with a debt load 9.6 times earnings before interest, taxes, depreciation and amortization, said one of the people. The early-stage energy driller recorded about $160 million in annualized first-quarter Ebitda, said one of the people.

American Energy Partners plans to use proceeds, together with $1.145 billion of equity provided by shareholders and initial borrowing under a revolving line of credit, to lease drilling rights in the Permian Basin from Enduring Resources LLC, said the people.

McClendon started American Energy after he was ousted from natural-gas producer Chesapeake, which he co-founded. High-yield, high-risk, or junk, bonds are rated below Baa3 at Moody’s and BBB- by S&P.

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