Talos Energy Announces Pricing of Upsized Offering of $625 Million of Second-Priority Senior Secured Notes Due 2029 and $625 Million of Second-Priority Senior Secured Notes Due 2031

Rhea-AI Summary

Talos Energy Inc. announces an upsized offering of $625 million in aggregate principal amount of new 9.000% Second-Priority Senior Secured Notes due 2029 and $625 million in aggregate principal amount of new 9.375% Second-Priority Senior Secured Notes due 2031. The net proceeds will fund the pending acquisition of QuarterNorth Energy, Inc., the redemption of existing notes, and general corporate purposes.

Insights

Financial Analyst

The upsizing of Talos Energy Inc.'s bond offering to $1.25 billion is a significant financial move that warrants a detailed analysis from a financial perspective. By issuing 9.000% and 9.375% Second-Priority Senior Secured Notes due in 2029 and 2031, respectively, Talos is leveraging the debt market to finance its strategic acquisition of QuarterNorth Energy, Inc. and to manage its existing debt obligations. The decision to redeem the 12.00% Notes and the 11.750% Notes indicates a proactive approach to debt management, potentially reducing future interest expenses by replacing higher-interest debt with lower-cost capital.

From an investor's standpoint, the interest rates offered on the New Notes suggest a risk premium associated with Talos's creditworthiness and the oil and gas sector's volatility. The interest rates are above the average corporate bond yields, reflecting the inherent risks of the energy industry, such as fluctuating commodity prices and regulatory changes. Investors may perceive this debt issuance as an indicator of the company's confidence in its long-term cash flows, especially considering the acquisition's potential to enhance Talos's asset portfolio and operational synergies.

However, the increase in leverage could also raise concerns about the company's debt serviceability, especially if the energy market faces downturns. It is crucial to monitor the company's future earnings and cash flow statements to assess the impact of this capital restructuring on its financial health.

Energy Sector Analyst

The acquisition of QuarterNorth Energy by Talos Energy is a strategic move within the energy sector, likely aimed at consolidating assets and enhancing production capabilities. The use of proceeds from the bond offering to fund this acquisition suggests that Talos is seeking to expand its footprint and capitalize on synergies that may arise from the integration of QuarterNorth's operations.

Given the nature of the energy sector, where economies of scale can significantly impact operational efficiency and cost control, this acquisition could position Talos more favorably in the market. The focus on redeeming higher-interest debt also reflects a strategic financial management approach that could improve Talos's balance sheet and free up cash flows for reinvestment into core business activities.

Analysts and stakeholders should evaluate the acquisition's potential to deliver increased reserves, production growth and operational efficiency. The long-term success of this strategy will depend on Talos's ability to integrate QuarterNorth's assets effectively and realize the anticipated benefits amidst the volatile oil and gas market conditions.

Debt Market Analyst

The pricing of Talos Energy Inc.'s senior secured notes at 9.000% and 9.375% reflects the current conditions in the debt market and the company's credit risk assessment. These rates are considerably higher than the benchmark interest rates, indicating that investors are demanding a higher yield for taking on the risk associated with Talos's business and the energy sector as a whole.

Investors in the debt market should note that the secured nature of these notes suggests they have a claim on the company's assets in the event of default, which provides a degree of protection. However, the 'second-priority' status indicates that these claims are subordinate to those of first-priority lien holders, which could affect recovery rates in adverse scenarios.

The redemption of existing higher-interest notes is a strategic maneuver that could improve Talos's interest expense profile and credit ratings over time. Market participants will likely scrutinize the terms of the redemption, including any potential premiums paid, as these could influence the company's short-term liquidity and long-term financial stability.

HOUSTON, Jan. 25, 2024 /PRNewswire/ -- Talos Energy Inc. ("Talos") (NYSE: TALO) today announced that Talos Production Inc. (the "Company"), a wholly owned subsidiary of Talos, has priced an upsized offering (the "Offering") of $625 million in aggregate principal amount of new 9.000% Second-Priority Senior Secured Notes due 2029 and $625 million in aggregate principal amount of new 9.375% Second-Priority Senior Secured Notes due 2031 (collectively, the "New Notes"). The Company intends to use the net proceeds from the Offering to (i) fund a portion of the cash consideration for the Company's recently announced pending acquisition of QuarterNorth Energy, Inc. ("QuarterNorth," and such acquisition, the "Acquisition"), (ii) fund the redemption (the "Redemptions") of all of the outstanding 12.00% Second-Priority Senior Secured Notes due 2026 issued by the Company (the "12.00% Notes") and all of the outstanding 11.750% Senior Secured Second Lien Notes due 2026 issued by Talos Energy Ventures GOM LLC (f/k/a Energy Ventures GoM LLC) and Talos Finance Corporation (f/k/a EnVen Finance Corporation), each a wholly owned subsidiary of the Company (the "11.750% Notes," and collectively with the 12.00% Notes, the "Existing Notes"), and (iii) pay any premiums, fees and expenses related to the Redemptions and the issuance of the New Notes. The Company intends to use any remaining net proceeds for general corporate purposes, which may include the repayment of a portion of the outstanding borrowings under its senior reserves-based revolving credit facility (the "Credit Facility"). The Offering is expected to close on or about February 7, 2024, subject to customary closing conditions.

An aggregate of $340 million principal amount of the New Notes will be subject to a "special mandatory redemption" in the event that the transactions contemplated by the definitive agreement to acquire QuarterNorth (the "QuarterNorth Merger Agreement") are not consummated on or before May 31, 2024 (or up to September 30, 2024 solely in the event the parties require additional time to satisfy certain requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, pursuant to the terms of the QuarterNorth Merger Agreement), or if the Company notifies the trustee of the New Notes that it will not pursue the consummation of the Acquisition.

It is expected that the New Notes will be guaranteed on a senior basis by Talos and certain of the Company's existing and future subsidiaries and will initially be secured on a second-priority basis by substantially the same collateral as the Company's existing first-priority obligations under its Credit Facility.

The New Notes are being offered in the United States only to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and to persons outside the United States only in compliance with Regulation S under the Securities Act. The New Notes have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.

This press release does not constitute an offer to sell or the solicitation of an offer to buy any security, nor shall there be any sale of the New Notes or any other security of the Company, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such jurisdiction. This press release does not constitute a notice of redemption under the optional redemption provisions of the indentures governing the Existing Notes.

ABOUT TALOS ENERGY

Talos Energy (NYSE: TALO) is a technically driven, innovative, independent energy company focused on safely and efficiently maximizing long-term value through its Upstream Exploration & Production and Low Carbon Solutions businesses. We currently operate in the United States and offshore Mexico. We leverage decades of technical and offshore operational expertise to acquire, explore, and produce assets in key geological trends while developing opportunities to reduce industrial emissions through carbon capture and storage projects along the U.S. Gulf Coast. For more information, visit www.talosenergy.com .

INVESTOR RELATIONS CONTACT

investor@talosenergy.com 

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This communication contains "forward-looking statements" within the meaning of U.S. Private Securities Litigation Reform Act of 1995. When used in this communication, the words "will," "could," "believe," "anticipate," "intend," "estimate," "expect," "project," "forecast," "may," "objective," "plan" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All statements, other than statements of historical fact included in this communication, are forward-looking statements, including, but not limited to, statements regarding the expected closing of the Offering and the intended use of the net proceeds therefrom, and the pending Acquisition. These forward-looking statements are based on our current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.

We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks include, but are not limited to, our ability to consummate the Acquisition on the terms currently contemplated, the anticipated future performance of the combined company, risks and uncertainties related to economic, market or business conditions, satisfaction of customary closing conditions related to the Offering, and the other risks discussed in "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (the "SEC"), our Quarterly Reports on Forms 10-Q filed with the SEC and our other filings with the SEC, all of which can be accessed at the SEC's website at www.sec.gov.

Should one or more of the risks or uncertainties described herein occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this communication are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this communication.

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SOURCE Talos Energy

FAQ

What is Talos Energy Inc.'s ticker symbol?

The ticker symbol for Talos Energy Inc. is TALO.

What is the purpose of the upsized offering announced by Talos Energy Inc.?

The upsized offering is intended to fund the pending acquisition of QuarterNorth Energy, Inc., the redemption of existing notes, and general corporate purposes.

What are the details of the new notes offered by Talos Energy Inc.?

Talos Energy Inc. is offering $625 million in aggregate principal amount of new 9.000% Second-Priority Senior Secured Notes due 2029 and $625 million in aggregate principal amount of new 9.375% Second-Priority Senior Secured Notes due 2031.

How does Talos Energy Inc. plan to use the net proceeds from the offering?

The net proceeds will be used to fund the pending acquisition of QuarterNorth Energy, Inc., the redemption of existing notes, and general corporate purposes, including the repayment of outstanding borrowings under its senior reserves-based revolving credit facility.