Diamondback Energy Launches Bond Sale to Fund $26 Billion Endeavor Acquisition – World Oil
Diamondback Energy Inc. is making waves in the U.S. investment-grade market with a bond offering to help finance its $26 billion acquisition of Endeavor Energy Resources LP. The company is joining a slew of other top-tier companies taking advantage of strong investor demand for acquisition-related debt deals.
According to sources familiar with the matter, Diamondback is planning to sell the bonds in up to five parts, with the longest portion being a 40-year security that could yield 170 basis points above Treasuries. The total target size of the issuance is rumored to be around $5 billion.
The proceeds from the bond offering will be used for general corporate purposes, including funding a portion of the cash consideration for the Endeavor merger and repaying certain debt of Endeavor if the merger closes. Diamondback had previously secured a $1.5 billion term loan agreement to help finance the acquisition.
The acquisition of Endeavor, a fellow Texas oil-and-gas producer, is set to create the largest operator focused on the prolific Permian basin. Diamondback will fund the deal with a combination of 117.3 million shares and $8 billion in cash.
Bank of America Corp., Citigroup Inc., and Toronto-Dominion Bank are reportedly managing the bond sale. This multi-billion dollar bond offering is part of a larger trend in the high-grade market, with companies like Home Depot Inc. also taking on significant debt to fund acquisitions.
CreditSights analysts predict that Diamondback’s debt outstanding will double to around $13 billion if the takeover is completed. However, they note that the company’s cash flow throughout the year will help limit the leverage impact, with pro forma leverage expected to be around 1.1 times by the end of the year.
Looking ahead, the analysts suggest that Diamondback’s CFO aims to keep net debt in the $6-$8 billion range, with substantial cash reserves for potential share repurchases. Overall, the bond offering and acquisition deal are positioning Diamondback Energy Inc. for significant growth and expansion in the energy sector.