California Resources Corporation Announces Pricing of Upsized Private Offering of $600 Million of Senior Unsecured Notes

Rhea-AI Summary

California Resources (CRC) announced the pricing of its $600 million upsized private offering of 8.250% senior unsecured notes due 2029.

The notes, guaranteed by CRC's subsidiaries, will close on June 5, 2024, pending customary conditions. Net proceeds of approximately $590 million will repay existing indebtedness of Aera Energy as part of the pending merger with Aera Companies. If the merger doesn't complete by May 7, 2025, the notes will be subject to special mandatory redemption.

The notes are not registered under the Securities Act and will be offered to qualified institutional buyers and non-U.S. persons.

Positive

• Successful pricing of $600 million upsized offering of senior unsecured notes.
• Net proceeds are estimated to be approximately $590 million after deducting initial purchasers' discount and expenses.
• Notes guaranteed by existing and future subsidiaries, enhancing credit security.
• Proceeds will be used for strategic repayment of Aera Energy's existing indebtedness in connection with a pending business combination, potentially strengthening financial position post-merger.

Negative

• The notes carry a high-interest rate of 8.250%, potentially increasing interest expense.
• Special mandatory redemption clause adds uncertainty if the Aera Merger is not consummated by May 7, 2025.
• Notes are not registered under the Securities Act, limiting their liquidity and resale options.

Financial Analyst

California Resources Corporation's announcement of a $600 million private offering results in multiple financial implications for investors.

The upsized offering, priced at an 8.250% interest due in 2029, indicates confidence in market demand for their debt. This rate is relatively high, suggesting the company needs to offer a substantial yield to attract investors, possibly reflecting the perceived risk or leveraging opportunity.

Net proceeds are expected to be around $590 million. The company plans to utilize the funds, combined with cash and credit borrowings, to repay the existing debt of Aera Energy in connection with an ongoing merger. This strategic move could improve their balance sheet by consolidating debt and potentially reducing overall interest expenses, depending on the terms of their current obligations.

The special mandatory redemption clause highlights a contingency plan. If the Aera Merger does not close by May 7, 2025, or if the merger is called off, the Notes will be redeemed at the issue price plus accrued interest. This clause mitigates risk for investors, ensuring that their investment is safeguarded to a degree, should the merger fail to materialize. Still, the redemption may impact the company’s financial strategy, causing disruptions if they need to return the capital.

Importantly, the offering targets institutional buyers via Rule 144A and non-U.S. transactions under Regulation S, ensuring compliance with securities regulations and limiting the buyer pool to qualified investors.

Market Research Analyst

The issuance of 8.250% senior unsecured notes by California Resources Corporation, tied to the impending Aera Merger, offers intriguing market insights.

The company’s choice to issue senior unsecured notes, which are not backed by collateral, suggests a reliance on its overall creditworthiness and future cash flows. The 8.250% interest rate is relatively high and could reflect market perceptions of risk or a strategic move to attract investors willing to accept higher yields in exchange for perceived risks associated with the merger and the company's broader market position.

The Aera Merger, central to this financial maneuver, is notable. If successful, it may create synergistic efficiencies and enhance operational scale. However, the merger’s uncertainty, as evidenced by the special mandatory redemption clause, indicates potential volatility. Investors should watch for updates on this merger's progress, as it will significantly impact CRC's market position and financial health.

From a broader market perspective, this transaction reflects ongoing trends where energy companies leverage debt markets to finance strategic acquisitions. Successful completion could signal CRC’s ability to navigate complex market conditions and improve its foothold in the energy sector. Conversely, failure or delays in the merger could prompt market reassessment of CRC’s strategy and stability.

LONG BEACH, Calif.--(BUSINESS WIRE)-- California Resources Corporation (NYSE: CRC) (the “Company”) announced today the pricing of its upsized private offering of $600 million in aggregate principal amount of its 8.250% senior unsecured notes due 2029 (the “Notes”) at par. The Notes will be guaranteed by all of the Company’s existing subsidiaries that guarantee its revolving credit facility, its 7.125% senior unsecured notes due 2026 and certain future subsidiaries. The offering is expected to close on June 5, 2024, subject to customary closing conditions.

The Company estimates that the net proceeds from the offering will be approximately $590 million after deducting the initial purchasers' discount and estimated expenses. The Company intends to use the net proceeds from this offering, cash on hand and borrowings under its revolving credit facility to repay the existing indebtedness of Aera Energy, LLC and its operating affiliate Aera Energy Services Company (together, the “Aera Companies”) in connection with the pending business combination with the Aera Companies (the “Aera Merger”).

If (x) the consummation of the Aera Merger does not occur on or before May 7, 2025 (the “Outside Date”), or (y) prior thereto, the Company notifies the trustee in writing that the merger agreement related to the Aera Merger (the “Merger Agreement”) has been terminated or the Company will not pursue the consummation of the Aera Merger or has determined in its sole discretion that the Aera Merger cannot or is not reasonably likely to be consummated by the Outside Date, the Notes will be subject to a special mandatory redemption at a redemption price equal to 100% of the initial issue price of the Notes plus accrued and unpaid interest to, but excluding, the payment date of such special mandatory redemption.

The Notes have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws and may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and the rules promulgated thereunder and applicable state securities laws. The Notes will be offered only to persons reasonably believed to be qualified institutional buyers in reliance on Rule 144A under the Securities Act and non-U.S. persons in transactions outside the United States in reliance on Regulation S under the Securities Act.

This press release does not and shall not constitute an offer to sell or the solicitation of an offer to buy any Notes, nor shall there be any offer, solicitation or sale of Notes in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

Forward-Looking Statement Disclosure

All statements, except for statements of historical fact, made in this release regarding activities, events or developments the Company expects, believes or anticipates will or may occur in the future, such as statements regarding the proposed offering, the intended use of proceeds and the business combination with the Aera Companies, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements speak only as of the date of this release. Although the Company believes that the plans, intentions and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that these plans, intentions or expectations will be achieved. Therefore, actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements. Except as required by law, the Company expressly disclaims any obligation to and does not intend to publicly update or revise any forward-looking statements.

The Company cautions you that these forward-looking statements are subject to all of the risks and uncertainties incident to the Company’s business, most of which are difficult to predict and many of which are beyond the Company’s control. These risks include, but are not limited to, the risks described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and its subsequently filed Quarterly Report on Form 10-Q.

About California Resources Corporation

California Resources Corporation is an independent energy and carbon management company committed to energy transition. CRC produces some of the lowest carbon intensity production in the US and is focused on maximizing the value of its land, mineral and technical resources for decarbonization by developing carbon capture and storage and other emissions reducing projects.

Additional Information and Where to Find It

This communication may be deemed to be solicitation material in respect of the transactions contemplated by the Merger Agreement, including the proposed issuance of the Company’s common stock pursuant to the Merger Agreement. In connection with the transaction, the Company filed a proxy statement on Schedule 14A with the U.S. Securities and Exchange Commission (“SEC”), as well as other relevant materials. Following the filing of the definitive proxy statement, the Company mailed the definitive proxy statement and a proxy card to its stockholders. INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ THE PROXY STATEMENT AND OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE COMPANY, THE AERA COMPANIES, THE AERA MERGER AND RELATED MATTERS. Investors and security holders will be able to obtain copies of the proxy statement as well as other filings containing information about the Companies, the Aera Companies and the Aera Merger, without charge, at the SEC’s website, www.sec.gov. Copies of documents filed with the SEC by the Company will be available, without charge, at the Company’s website, www.crc.com. The information included on, or accessible through, the Company’s website is not incorporated by reference into this communication.

Participants in Solicitation

The Company and its directors and executive officers may be deemed to be participants in the solicitation of proxies in connection with the Aera Merger. Information about the directors and executive officers of the Company is set forth in the proxy statement for the Company’s 2024 Annual Meeting of Stockholders, which was filed with the SEC on March 21, 2024. Investors may obtain additional information regarding the interest of such participants by reading the proxy statement regarding the transaction.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240521482119/en/

CRC Contacts:

Joanna Park (Investor Relations)

(818) 661-3731

Joanna.Park@crc.com

Richard Venn (Media)

(818) 661-6014

Richard.Venn@crc.com

Source: California Resources Corporation

FAQ

What is the amount of CRC's upsized private offering?

CRC's upsized private offering is $600 million.

What is the interest rate of CRC's new senior unsecured notes?

The interest rate of CRC's new senior unsecured notes is 8.250%.

When are CRC's new senior unsecured notes due?

CRC's new senior unsecured notes are due in 2029.

What will CRC use the proceeds from the offering for?

CRC will use the proceeds to repay existing debts of Aera Energy as part of a pending merger.

What happens if the Aera Merger is not consummated by May 7, 2025?

If the Aera Merger is not consummated by May 7, 2025, the notes will be subject to special mandatory redemption.