EP Energy has cut more than $1 billion of debt since 2015, confident on 2020 maturity

By Paul Deckelman

New York, March 2 – EP Energy Corp. has cut more than $1 billion of bank and bond debt since the end of 2015 – and feels confident that its newly enhanced financial flexibility gives it more options as it considers what do about its largest approaching debt maturity, which will come due in May of 2020.

The Houston-based oil and natural gas exploration and production company’s chairman, president and chief executive officer, Brent J. Smolik, told analysts on EP’s Thursday conference call following the release of its financial results for the 2016 fiscal fourth quarter and full year ended Dec. 31 that the year just past “was a year of solid execution for EP Energy, with significant operational and financial progress.”

According to EP’s most recent 10-Q quarterly filing with the Securities and Exchange Commission, covering the third-quarter and nine-month period ended on Sept. 30, during those nine months, the company paid approximately $407 million in cash to repurchase a total of $812 million principal amount of its senior unsecured notes and term loans, which resulted in a gain on extinguishment of debt of approximately $26 million for the quarter and $393 million for the nine months.

Smolik told the analysts that “more recently, we have continued to improve our financial flexibility with November and February refinancings, both of which extended our debt maturity profile and enhanced liquidity.”

In November, EP, though its EP Energy LLC subsidiary, sold $500 million of 8% senior secured notes due 2024; these priced at par on Nov. 17 after the regularly scheduled forward calendar deal was upsized from an originally announced $350 million. Proceeds were used to repay outstanding borrowings under the company’s reserve-based revolving credit facility due 2019 and for general corporate purposes.

EP made a return visit to the Junkbondland primary arena last month, selling $1 billion of 8% 1.5-lien senior secured notes due 2025, which priced at par on Feb. 1 after the regularly scheduled deal was upsized from an originally announced $600 million. Proceeds were used to refinance the company’s 1.5-lien term loan.

Smolik said that since the end of 2015, EP has reduced debt by $1 billion, “and we significantly extended our maturity profile,” retiring or extending over $2 billion of maturities that had been scheduled to come due prior to 2020, “while also leaving ourselves the flexibility to effectively tackle our 2020 maturities.”

The company has just $21 million of senior secured term loan debt remaining outstanding, down from nearly $500 million at the end of 2015, and, following the repayment of its revolver borrowings, $278 million of term loan debt due in 2019, down from more than $1.2 billion a year ago.

Its biggest maturity is the roughly $1.3 billion of 9 3/8% senior unsecured notes due in 2019, down from $2 billion at the end of 2015.

What had been $350 million of 7¾% senior unsecured notes due 2022 at the end of 2015 has since been whittled down to $250 million, while $800 million of 6 3/85 senior unsecured notes due 2023 has been reduced to around $550 million.

Smolik said that 2016 “was a year when we focused primarily on generating free cash flow and improving our financial position.”

He said the company ended the year with liquidity of $1.1 billion, including cash on hand and revolver availability, “which leaves us with significant financial flexibility, and we believe that we now have all options available as we think about funding 2017 capital spending and managing future maturities.”

During the question-and-answer portion of the call, Smolik was asked whether EP has any kind of a debt or leverage target.

He replied that “we don’t have a bright line,” on the absolute value of debt it would like to have outstanding.

Instead, he said that “there are more options available to us than we have had in the last several years. We’ve got plenty of RBL capacity or plenty of liquidity to work with. We’ve done asset sales in the past... and we can think about doing that again and we’ve got, I think, better access to the capital markets than we’ve had in the last several years.”

© 2015 Prospect News.
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