Southwestern Energy's (SWN) upsized secondary offering is further proof of the company's need to get creative in addressing its balance-sheet worries.
The Texas-based company announced Wednesday that it would be offering 86 million shares of common stock, with expected proceeds before fees to be $1.1 billion. Southwestern expects to use the proceeds of the offering along with cash on hand to pay back $375 million of its $750 million term loan and to fund tender offers to repurchase notes coming due in 2018 and 2020, with stronger preference being given to the earlier notes.
"Management has taken commendable steps to improve the balance sheet both in terms of leverage and addressing near term maturities," Drew Venker of Morgan Stanley wrote in a note Wednesday. "We remain Underweight primarily due to SWN's less attractive risk-reward than peers and stress that while we believe the stock will underperform it is not an outright short."
Shares Southwestern were flat midday Thursday, trading around $13. Year to date, shares have gained 83%, due to rising energy prices and the company's own efforts to address its balance sheet. As of its first-quarter filing with the Securities and Exchange Commission, Southwestern had $6.4 billion in long-term debt. Representatives from Southwestern Energy did not immediately respond to requests to comment.
On Monday, the company announced that it was able to extend maturities and modify terms on its credit facilities. Earlier this year, Southwestern got creative in addressing its liquidity by borrowing against its credit agreement just before the first quarter's close only to repay the funds the following day. The move allows Southwestern to incur $232 million more of secured debt during the second quarter, which could be used to restructure debts.
Wednesday's equity offering suggests that previous efforts were insufficient as the company faced pressure from ratings agencies.
Just last week, S&P Global Ratings downgraded Southwestern two notches further into "junk" territory, to BB- from BB+. The ratings action, which was coupled with a Negative outlook, addressed Southwestern's need to address its 2018 maturities.
A week later the company announced plans to issue equity.
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