SandRidge Energy Inc. sold $1.25 billion in five-year secured notes to repay borrowings under its credit line.
The bonds, increased from an initially marketed $1 billion, yielded 8.75 percent at a spread of 7.23 percentage points more than similar-maturity U.S. Treasuries. That compares with the 6.37 percentage-point premium over government debt that investors demand to own junk-rated energy companies in the secondary market, according to Bank of America Merrill Lynch indexes.
The oil-and-gas producer joins energy companies from Peabody Energy Corp. to Warren Resources Inc. that have issued secured debt this year to enhance liquidity amid a lending squeeze due to crude-oil prices trading near a six-year low.
“It’s not surprising that SandRidge is issuing second-lien debt given that they amended their credit agreement earlier this year to allow them to do that,” Bloomberg Intelligence analyst Spencer Cutter said by telephone. “Not only does it get them some additional capital and liquidity, but you’re also swapping out borrowing-base liquidity -- which is subject to revisions every few months -- to a bond that, once issued, it’s issued.”
In issuing the bonds, SandRidge agreed to cut its borrowing base to $500 million from $900 million, KDP Investment Advisors wrote in a report Thursday. As of May 1, Oklahoma City-based SandRidge had drawn $235 million of the $900 million allowed at the time under the revolver, according to data compiled by Bloomberg.
Jeffrey Wilson, a spokesman for SandRidge, declined to comment on the deal.
The offering triggered moves by credit-rating companies Standard & Poor’s and Moody’s Investors Service.
Moody’s assigned to the debt a B1 rating, a category that denotes speculative debt with high credit risks. It also cut SandRidge’s corporate family rating to Caa1 from B3, citing “high financial leverage and worsening credit metrics” in a report Thursday.
S&P changed the company’s corporate credit rating to CCC+ with a negative outlook from SD, or selective default, saying the issuance “improves SandRidge’s financial flexibility” because it would increase liquidity and soften covenant requirements under the credit facility. S&P had cut SandRidge to SD last week.
Barclays Plc, Morgan Stanley, Royal Bank of Canada, Capital One Bank, Natixis SA, Royal Bank of Scotland Group Plc, SunTrust Robinson Humphrey Inc. and UBS Group AG underwrote the deal.
SandRidge’s 7.5 percent unsecured notes maturing in March of 2021 dropped 2 cents on the dollar to 60 cents. The bonds have lost nearly half their value in the past year after trading as high as 109 cents on the dollar last June.
The company’s shares fell 0.8 percent to $1.20 as of 4 p.m. New York time after dropping as low as $1.07. They’re down 34 percent this year and have plunged from a high of $69.41 in 2008.