Crescent upsizes CB to extinguish 2028 debt
Crescent Energy became the latest corporate to turn to the convertible bond market for low-cost funding, raising an upsized US$600m late Tuesday from the sale the sale of a five-year CB used to take out higher-coupon straight debt.
Goldman Sachs, KKR Capital Markets and RBC Capital Markets priced the new CB at a 2.75% coupon and 32.5% conversion premium, at the aggressive-ends of 2.75%–3.25% and 27.5%–32.5% price talk. Strong investor demand allowed them to increase the offering size from the US$400m publicly marketed for one day.
After falling 6.4% over the one-day marketing period, the oil explorer’s shares rebounded 2.4% to close Wednesday’s session at US$11.51.
Crescent spent US$49m of the proceeds raised on a capped call to offset dilution from the CB up to a share price of US$22.48, a 100% premium to the US$11.24 reference price and the US$14.89 price investors are eligible to convert.
“The capped call was attractive to the company because it effectively makes the CB a debt surrogate,” said one banker involved in the offering.
Crescent is using the remaining proceeds to redeem the remaining US$500m principal of 9.25% debt maturing in 2028. The company tendered for US$500m principal of the 2028s last year, funding the early purchases with US$600m raised from the sale of 8.375% straight debt maturing in 2034.
Surging oil prices benefitted the outcome of the CB, though not the decision to fund, said the banker. Amid war in the the Middle East, US benchmark oil spiked nearly 33% on the week to the highest level in more than three years.
Formed through a merger with KKR’s Independence Energy and Contango Oil & Gas in 2021, Crescent has grown through acquisitions, most recently the US$3bn all-stock purchase of Vital Energy.
KKR collects a base management fee plus additional fees tied to the equity issuance value, with the latter component capped for mergers.
Crescent, a multi-basin explorer, is coming off a blockbuster fourth quarter that saw it generate US$536m of adjusted Ebitda on average daily production of 268,000 barrels of oil equivalent.