EnVen Energy Ventures is guiding its proposed second lien notes with double-digit pricing, in line with Gulf of Mexico peers amid uncertainty over the future of federal leases that the operators depend on, according to four sources following the deal.

Led by JPMorgan, the offshore exploration and production company is marketing a Caa1 USD 300m second lien note due 2026, whispered in the 12% area with a 98 OID, the sources said. Proceeds will be used to fund the redemption of the company’s 2023 notes and for general corporate purposes. Pricing is expected on Thursday (8 April).

To drum up interest, EnVen held investor meetings via a non-deal roadshow with JPMorgan in March, one of the sources said.

The company’s USD 263m 11% second lien notes due 2023 shot up after the non-deal roadshow meetings, last trading at 104.25 yielding 5.816%, compared to 98.75 yielding 11.72% on 18 February, according to MarketAxess. The notes are callable at 104.125.

The extent of the Biden administration’s regulatory impact on the sector as a whole remains somewhat unknown. Environmental activists are piling on pressure for the president to fulfill his promise to ban new offshore drilling.

In February, the administration cancelled a 17 March oil and gas lease sale that would have auctioned off over 78 million acres in the Gulf of Mexico. The Bureau of Ocean Energy Management also cancelled the public meetings and comment period for a fossil fuel sale in Alaska’s Cook Inlet.

All of EnVen’s operations take place in waters leased from the federal government, the sources said. Moving forward, the company and the sector face risks about renewing or obtaining leases and permits in federal waters.

Pro forma leverage totals 1.3x through USD 232m of LTM adjusted EBITDA and USD 302m of pro forma total debt. The company stands to generate USD 95m-USD 125m in free cash flow this year, considering USD 235m of LTM adjusted EBITDA, less USD 70m-USD 100m of capex and USD 40m of pro forma interest expense.

The company’s USD 70m-USD 100m capex guidance (which excludes USD 15m-USD 20m of plugging and abandonment expenditures) compares to roughly USD 186m of capex spent in 2020, excluding P&A expenses.

The proposed pricing is slightly wide of fellow Gulf of Mexico operator Talos Production’s recently priced USD 650m second lien notes due 2026 due to Talos’s larger scale and one-notch-higher ratings.

Talos’s B3/B+ USD 650m 12% second lien notes due 2026 last traded at 98.45 to yield 12.424% on 1 April, according to MarketAxess.

Talos tapped the market in December 2020 for an issue of USD 400m second lien notes due 2026, initially talked at a 12% coupon with a 90-92 OID, before upsizing the deal to USD 500m and pricing at 12% and 91 to yield 14.583%. It issued another USD 150m in January 2021 at 12% and a 97 OID.

EnVen recently amended its revolver to extend its maturity date to 2024, from 2022, and revised the borrowing base to USD 165m, from USD 275m. Factoring in the borrowing base adjustment and USD 4m in letters of credit, liquidity chalks up to USD 215m through USD 54m of cash and USD 161m of revolver availability.

For 2021, EnVen expects to produce 25 MBoe/day, compared to roughly 26 MBoe/day in 2020.

EnVen and JPMorgan did not respond to requests for comment.

2021 Debtwire