SM Energy to sell $100 million senior convertible notes due 2021

By Stephanie N. Rotondo

Seattle, Aug. 8 – SM Energy Co. is offering $100 million of senior convertible notes due July 1, 2021, the company said in a press release on Monday.

There is a $15 million over-allotment option.

Wells Fargo Securities LLC, BofA Merrill Lynch and J.P. Morgan Securities LLC are the joint bookrunners. Barclays and BBVA are the co-managers.

Interest will be payable on Jan. 1 and July 1. Holders can convert the notes – to common stock, cash or a combination thereof, at the company’s option – prior to Jan. 1, 2021 should the stock meet a 130% hurdle, or if the trading price of the notes for a five-day period is less than 98% of the product of the last reported stock sale price and the conversion rate.

Holders can also convert their holding prior to Jan. 1, 2021 upon the occurrence of certain corporate events.

After Jan. 1, 2021, the notes can be converted at any time.

In connection with the offering, the company expects to enter into privately negotiated capped call transactions with one or more of the underwriters or their respective affiliates. The option counterparties meantime expect to enter into various derivative transactions with respect to SM Energy’s common stock concurrently with or shortly after the pricing of the notes. This activity could increase, or reduce the size of any decrease in, the market price of SM Energy’s common stock or the notes at that time.

Additionally, the option counterparties may modify their hedge positions by entering into or unwinding derivatives related to SM Energy’s common stock and/or purchasing or selling SM Energy’s common stock or other securities of SM Energy in secondary market transactions following the pricing of the notes and prior to the maturity of the notes, and are likely to do so during any observation period related to a conversion of notes.

Concurrently with the notes offering, the Denver-based oil and gas company is selling 15 million shares of its common stock. That deal includes a 2.25 million-share over-allotment option.

Proceeds will be used to pay a portion of the purchase price for the recently announced acquisition of all the outstanding membership interests of an entity holding undeveloped leasehold interests, producing wells and associated infrastructure assets in the Midland Basin of West Texas from Rock Oil Holdings LLC.

If the acquisition does not close, SM Energy intends to use the proceeds for general corporate purposes.

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