In a strategic financial move, SM Energy Co (NYSE:SM), an oil and natural gas company, has announced the issuance of $1.5 billion in senior notes. The Denver-based company detailed the transaction in a recent 8-K filing with the Securities and Exchange Commission.
On Thursday, SM Energy entered into a definitive agreement to issue $750 million in 6.75% Senior Notes due 2029 and an additional $750 million in 7.000% Senior Notes due 2032. These notes were sold pursuant to a Purchase Agreement dated July 18, 2024, with J.P. Morgan Securities LLC, Wells Fargo (NYSE:WFC) Securities, LLC, and BofA Securities, Inc. acting as the representatives of the initial purchasers.
The company has stated that the notes, which are exempt from registration under the Securities Act of 1933, will not be offered or sold within the United States without registration or an applicable exemption from the registration requirements. The private offering is targeted at qualified institutional buyers and non-U.S. persons in compliance with the stipulated regulations.
The proceeds from the sale of the notes are expected to be used for general corporate purposes, including the redemption of the company's existing 5.6% Senior Notes due 2025. The company has already issued a notice of full redemption for these notes, with the redemption scheduled for August 26, 2024.
The new notes will bear interest semi-annually and have provisions for early redemption. The 2029 Notes can be redeemed at a rate of 106.750% and the 2032 Notes at 107.000% of their principal amount, subject to certain conditions. Additionally, the company may redeem the notes at any time prior to maturity at a specified make-whole premium.
SM Energy's financial strategy includes covenants that limit its ability to incur additional debt, pay dividends, sell assets, and engage in certain transactions with affiliates, among other restrictions. These covenants are subject to important exceptions, including the suspension of certain covenants if the notes receive an investment grade rating.
In other recent news, Denver-based SM Energy Co has amended its credit agreement to facilitate the acquisition of oil and gas assets in the Uinta Basin from XCL AssetCo. This strategic move is expected to enhance SM Energy's portfolio in the energy sector. Truist Securities adjusted its price target for SM Energy to $49.00, maintaining a Hold rating. The firm's revised model suggests higher earnings and free cash flow estimates for SM Energy.
RBC Capital Markets upheld its Sector Perform rating for SM Energy, maintaining a $54.00 price target. The firm views SM Energy's recent acquisition of XCL Resources as significantly beneficial to the company's free cash flow per share. BMO Capital also maintained its Market Perform rating on SM Energy, projecting significant enhancements to Free Cash Flow Per Share, Earnings Per Share, and Cash Flow Per Share due to the company's venture into the Uinta Basin.
Roth/MKM kept its Buy rating on SM Energy, suggesting the company's estimated production of approximately 195,000 barrels of oil equivalent per day may be conservative. These are recent developments that reflect SM Energy's ongoing efforts to maintain stable production levels and implement operational efficiencies.
InvestingPro Insights
In light of SM Energy Co's (NYSE:SM) recent financial activities, insights from InvestingPro provide a deeper understanding of the company's market position. With a market capitalization of $5.27 billion and a strong P/E ratio of 7.11, the company demonstrates robust financial health. The adjusted P/E ratio for the last twelve months as of Q1 2024 stands at an attractive 6.99, indicating the stock may be undervalued compared to earnings.
InvestingPro Tips highlight that SM Energy has maintained dividend payments for 32 consecutive years, a testament to its financial stability and commitment to returning value to shareholders. Additionally, the company's liquid assets surpass its short-term obligations, providing confidence in its ability to meet immediate financial needs. For investors seeking further insights and tips, InvestingPro offers additional guidance on SM Energy, with tips such as the company's moderate level of debt and its profitability over the last twelve months enhancing investment decisions.
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