Moss Creek to meet with investors after month-old bond slumps to low 90s

Moss Creek Resources is gearing up to sell its story once again to the high yield market, at a 6 June investor lunch in New York facilitated by UBS, said two sources familiar with the matter.

The cash-burning E&P placed a USD 500m 10.5% senior unsecured note due 2027 a month ago at par – entirely to replenish its liquidity – but the notes have dropped to 92.75 today yielding 11.93%, according to MarketAxess.

BofA led the April bond placement, and BMO led its previous high yield placement in January 2018, a USD 700m 7.5% senior unsecured note due 2026 that most recently changed hands at 83.625 to yield 11.051%, from trades at 92-93 in early May. Now, UBS’s trading desk is angling to drum up interest in the depressed bonds.

Liquidity pro forma the April bond deal was USD 715m, including USD 210m in cash and USD 505m in revolver availability. Proceeds from the USD 500m deal were used to repay USD 213.5m of revolver borrowings and provide USD 276.5m in cash for the balance sheet.

The Midland Basin-focused operator is likely to burn around USD 305m-USD 326m in cash this year, based on USD 529m-USD 550m of EBITDAX, USD 750m of capex and roughly USD 105m of interest costs, before accounting for any further revolver draws. Free cash flow could break even in 2020, investors estimated.

Leverage pro forma the deal was 2.2x, based on USD 1.175bn of total debt and USD 529m of LTM adjusted EBITDAX. Factoring in USD 210m of pro forma cash, net leverage was 1.8x.

Meanwhile, over the last month, falling oil prices have pressured E&P bonds and stocks across the board. WTI has dropped by roughly USD 10.00, or 16%, since 1 May, to USD 53.33 per barrel today from USD 63.60.

Moss Creek is a subsidiary of Surge Energy US Holdings Company, which commenced operations in April 2015 and is ultimately owned by Shanghai-listed Shandong Xinchao Energy Corp. Surge Energy acquired the Moss Creek assets from Tall City Exploration and Plymouth Petroleum in November 2015.

Moss Creek and UBS did not respond to requests for comment.

2019 Debtwire

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