EXXI is in the market with a new $300 million Senior Unsecured Convertible Due 2018. The talk is a 2.75 – 3.25% coupon and a conversion premium range of 47.5% – 52.5%. With the Company planning to concurrently use $100 million from borrowings under one of its credit facilities to repurchase stock, we would not expect any particular pressure on the stock over the coming days as a result of this deal (the fact that the deal was not an overnight also reduces any pressure on the stock).
The convertible is issued by the publicly traded parent – Energy XXI (Bermuda) Ltd. (EXXI). In contrast, subsidiary Energy XXI Gulf Coast Inc (EGC) is the issuer of each the 9.25% Senior Notes due 2017, 7.75% Senior Notes due 2019 and 7.50% Senior Notes due 2021, which are also fully and unconditionally guaranteed by EXXI and each of EGC’s existing and future material domestic subsidiaries. EXXI and its subsidiaries, other than EGC, have no significant independent assets or operations, according to the 10-K.
We do not consider EXXI to be at all a dicey credit. However, assuming the new converts are not guaranteed by EGC (please correct us if we’re mistaken) and that the converts lack the covenants of the existing HY bonds, we believe the converts should trade with an implied spread 100-150 bp points back of the 2019 and 2021 HY paper.