Petrohawk plans $125 million note sale, bank debt consolidation for Mission purchase

By Sara Rosenberg

New York, April 4 - Petrohawk Energy Corp. plans to issue about $125 of high-yield bonds and has begun talks with its bank group, including BNP Paribas, which was "very receptive," about consolidating the bank debt of Petrohawk and soon-to-be-acquired Mission Resources Corp., company officials said in a conference call.

Pro forma debt at closing of the Mission Resources acquisition is expected to be roughly $190 million to $195 million under a senior facility, Petrohawk's existing $50 million second-lien term loan B, and roughly $225 million in high-yield bonds, assuming that a new $125 million bond issue is raised.

"Roughly in round numbers we'll be in the 50% debt-to-cap at closing. That's excluding the $35 million subordinated note. I think it's 53% or so with it in there," officials said in the call.

"We have a goal of keeping our debt levels into a slightly more modest range than 50% debt-to-book cap. We would intend to attempt through the course of the year, through divestment and excess cash flow, to get that down into the low 40 range," officials added.

Petrohawk currently has a $400 million revolving credit facility with an initial borrowing base of $200 million that carries an interest rate of Libor plus 125 to 250 basis points, depending on utilization.

"The senior facility, that borrowing base will be increased with the combined group," officials said in the call.

"It's too early to pinpoint a number, but somewhere [around] $230 [million] to $240 [million] might be a range for the borrowing base for the combined companies, given the composition of the debt beyond the senior facility."

The company currently has about $128 million outstanding under its existing revolver's borrowing base. At closing, Petrohawk expects to have somewhere in the $40 million to $50 million range of liquidity under the revolver.

In addition, Petrohawk is considering a restructuring of Mission Resources' $130 million outstanding bonds, although nothing definitive has been determined at this time.

"It's a great time to be in a position to even consider restructuring that kind of note," company officials said in the call. "While the call might seem a little expensive, I think there are some things that we could offer those bondholders that would allow them a good reason to consider restructuring.

"However, if there's no restructuring, our capital structure is very well laid out and very affordable. The optionality there is great from our view."

Petrohawk has not yet talked to the rating agencies about the transaction, but officials did say in the call that the combined company "would deserve and get a much better credit rating than either company does standalone."

Under the acquisition agreement, Petrohawk has agreed to purchase Mission Resources for 19.2 million Petrohawk common shares, $135 million cash and the assumption of debt.

The acquisition is subject to the approval of the shareholders of Mission and Petrohawk. The boards of directors of both companies have unanimously approved the transaction, which is subject to customary conditions, including approval of listing of the Petrohawk shares to be issued in the acquisition on NASDAQ and regulatory approvals. The acquisition is expected to be completed during the third quarter.

Petrohawk is a Houston-based energy company. Mission Resources is a Houston-based independent exploration and production company.

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