Talos Energy Announces Proposed Offering of $1,000 Million of Second-Priority Senior Secured Notes

Rhea-AI Summary

Talos Energy Inc. announced a $1,000 million offering of new Second-Priority Senior Secured Notes to fund an acquisition and redemption of existing notes. The net proceeds will also be used for general corporate purposes and to repay outstanding borrowings. The New Notes are guaranteed by Talos and certain subsidiaries and will initially be secured on a second-priority basis by the same collateral as the existing first-priority obligations under the Credit Facility.

Financial Analyst

The initiation of a $1,000 million offering by Talos Production Inc., a subsidiary of Talos Energy Inc., is a significant move in the company's financial strategy, aiming to secure capital for both an acquisition and debt management. The decision to use the proceeds to fund the acquisition of QuarterNorth Energy, Inc. and redeem the high-interest 12.00% Second-Priority Senior Secured Notes due 2026 indicates a strategic pivot towards growth while managing existing debt obligations.

From a financial perspective, the replacement of high-cost debt with presumably lower-interest new notes could improve Talos's debt profile and interest expense, potentially enhancing future earnings and cash flow. Investors should consider the impact of this offering on the company's leverage ratios and interest coverage, as well as the potential dilution of existing equity if the acquisition is not purely accretive.

Furthermore, the special mandatory redemption clause tied to the consummation of the QuarterNorth acquisition by a specified date introduces a layer of risk. If the acquisition does not proceed as planned, the company may need to redeem the new notes, which could impact its liquidity position. The reliance on a senior guarantee and second-priority collateral as security for the new notes also suggests that these notes will be subordinate to the company's existing first-priority obligations, a factor that credit rating agencies and debt investors will closely scrutinize.

Market Research Analyst

From a market perspective, Talos Energy's move to issue new secured notes is indicative of the company's confidence in its growth trajectory and the perceived value of the QuarterNorth acquisition. The energy sector is known for its capital-intensive nature and such strategic acquisitions can provide companies like Talos with increased reserves, production capabilities and operational synergies.

Analysts should examine the potential market and operational synergies that the acquisition of QuarterNorth could bring to Talos, including increased market share, diversification of assets and economies of scale. The market's response to this offering will likely reflect its assessment of Talos's ability to integrate QuarterNorth effectively and realize the projected value from the acquisition.

Additionally, the terms of the offering, particularly the interest rates of the new notes and the security package, will signal the market's confidence in Talos's creditworthiness and future performance. The offering's success and the terms at which it closes could influence investor sentiment and the stock's performance in the short term.

Legal Expert

The legal implications of the offering, particularly the conditions of the special mandatory redemption and the adherence to the Hart-Scott-Rodino Antitrust Improvements Act, are crucial for ensuring the transaction's compliance and execution. The fact that the offering is only available to qualified institutional buyers under Rule 144A and to non-U.S. persons in compliance with Regulation S reflects a targeted approach to comply with securities regulations and limit the offering to sophisticated investors.

Investors should be aware of the legal framework governing the offering and the acquisition, as it could affect the timeline and certainty of the acquisition's completion. Any delays or complications in satisfying legal requirements could lead to the invocation of the special mandatory redemption, which would have financial consequences for the company and its investors.

The absence of registration under the Securities Act for the new notes implies that they will be subject to transfer restrictions, limiting their liquidity in the secondary market. This is a common trade-off in such private placements, which typically offer higher yields in exchange for reduced liquidity.

HOUSTON, Jan. 23, 2024 /PRNewswire/ -- Talos Energy Inc. ("Talos") (NYSE: TALO) today announced that Talos Production Inc. (the "Company"), a wholly owned subsidiary of Talos, has commenced an offering (the "Offering") of $1,000 million in aggregate principal amount of new Second-Priority Senior Secured Notes, consisting of Second-Priority Senior Secured Notes due 2029 and 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 "Redemption") of all of the outstanding 12.00% Second-Priority Senior Secured Notes due 2026 issued by the Company (the "2026 Notes"), and (iii) pay any premiums, fees and expenses related to the Redemption 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").

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 indenture governing the 2026 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 Company's plans to issue the New Notes 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 the purpose of the $1,000 million offering of new Second-Priority Senior Secured Notes by Talos Energy Inc.?

The purpose of the offering is to fund a pending acquisition of QuarterNorth Energy, Inc., redeem outstanding 12.00% Second-Priority Senior Secured Notes due 2026, and pay any related premiums, fees, and expenses. The remaining net proceeds will be used for general corporate purposes, including the repayment of outstanding borrowings.

What are the terms of the New Notes offered by Talos Energy Inc.?

The New Notes consist of Second-Priority Senior Secured Notes due 2029 and Second-Priority Senior Secured Notes due 2031, and an aggregate of $340 million principal amount of the New Notes will be subject to a special mandatory redemption if the pending acquisition of QuarterNorth Energy, Inc. is not consummated by a certain date.

Who are the New Notes being offered to?

The New Notes are being offered to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended, and to persons outside the United States in compliance with Regulation S under the Securities Act.

Are the New Notes registered under the Securities Act?

No, 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.