Crescent Energy gets S&P boost after acquisition; debt ratio is 1.1x

By Devika Patel

Knoxville, Tenn., Aug. 11 – Crescent Energy Co. management was pleased with July’s foray into the debt markets in which the company sold over $300 million of notes.

The company completed an acquisition and received a ratings upgrade from S&P Global Ratings after the close of the last quarter and intends to keep paying down debt for the remainder of the year.

“We made great progress in the capital markets and improved access to both the equity and debt capital markets while maintaining our strong balance sheet,” chief financial officer Brandi Kendall said on the company’s second quarter ended June 30 earnings conference call on Thursday.

“Following the close of the Western Eagle Ford acquisition and completion of the class A [stock] conversion, we received a ratings upgrade from S&P and we’re added to the BB high-yield index, which means we will have a positive impact on our liquidity and future cost of capital.

“This follows the upgrade we received from Moody’s [Investors Service] earlier this year and we are pleased that the agencies recognize the strength of our business and our consistent execution.

“Over the long term, we remain focused on achieving our goal of becoming an investment-grade company, which requires increasing our scale in a financially prudent way,” Kendall said.

The company priced a $300 million public add-on to the Crescent Energy Finance LLC 9¼% senior notes due Feb. 15, 2028 and $50 million of privately placed 7.54% three-year notes in July.

“Following the upgrade, we executed an upsized $300 million cap-on note offering with proceeds used to repay a portion of our revolver borrowings associated with the acquisition,” Kendall said.

Management aims to keep the net leverage ratio under 1.5x, and maintains a long-term leverage target of 1x. As of June 30, Crescent Energy had a net leverage ratio of 1.1x.

“Following the close of the $600 million Western Eagle Ford acquisition and associated cap-on notes offering, we maintained our strong financial position with an estimated net last 12 months’ leverage ratio below 1.5x and approximately $800 million of liquidity,” Kendall said.

“This is in line with our goal of remaining between 1x and 1.5x on a net leverage basis with more than $500 million of liquidity.

“We expect our strong outlook for free cash flow will allow us to further reduce absolute debt in line with our long-term leverage target of 1x net debt to EBITDA.

“Alongside the closing of the acquisition, our leverage reaffirmed our $2 billion borrowing base and $1.3 billion electric commitment amount.

“Our strong banking relationships have been critical in helping us navigate recent volatility in the bank market over the last few months,” Kendall said.

As of June 30, the company had $1.4 billion of total long-term debt and $62 million of cash and cash deposits related to the Western Eagle Ford acquisition.

As of June 30, pro forma for the Western Eagle Ford acquisition and reaffirmation of the company’s borrowing base under its revolving credit facility, which closed on July 3, the company had total long-term debt of $1.9 billion, $2 million of cash and approximately $800 million of liquidity.

The company intends to pay down debt through the remainder of the year using free cash flow.

“We expect to generate significant free cash flow for the remainder of the year, which we intend to allocate to debt repayment and the dividend,” chief executive officer David Rockecharlie said on the call.

Crescent Energy is a Houston-based independent energy company.

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