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Denbury Signs Outstanding Senior Note Exchange Contract

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Denbury Resources Inc. (DNR - Free Report) enters a privately negotiated agreement with holders of about $610 million of outstanding senior subordinated notes due 2022 and 2023 in exchange for about $466 million in aggregate principal amount of New Notes.

The New Notes comprise about $382 million in aggregate principal amount of new 9.25% Senior Secured Second Lien Notes due 2022 (the “New Second Lien Notes”) and about $85 million in aggregate principal amount of new 3.5% Convertible Senior Notes due 2024 (the “New Convertible Notes”).

Per the exchange agreement, the company will exchange the new notes for about $364 million in aggregate principal amount of outstanding 5.5% Senior Subordinated Notes due 2022 (the 2022 Notes) and about $246 million in aggregate principal amount of its 5.5% Senior Subordinated Notes due 2023 (the 2023 Notes). This will lower the outstanding principal amount of the Notes due 2022 to $409 million and that of 2023 Notes to $377 million.

Similar to the company’s 9% Senior Secured Second Lien Notes due 2021 issued in May 2016 (Existing Second Lien Notes), the New Notes will be senior in right of payment to the company’s outstanding subordinated notes and to any other current or future subordinated indebtedness of the company. The New Notes will be fully and unconditionally guaranteed, jointly and severally, by subsidiaries of the company representing its assets, operations and income.

The New Second Lien Notes, with a maturity date of March 31, 2022, will bear an interest rate of 9.25% per annum payable in cash. The notes will be secured by second-priority liens on the assets that secure the company’s senior secured bank credit facility.  The covenants of the New Second Lien Notes are the same in all material respects as those of the $615 million of 9% Existing Second Lien Notes.

The New Convertible Notes bearing an interest rate of 3.50% per annum payable in cash will have a maturity date of Mar 31, 2024.  At any time, the notes are convertible into the company’s common stock, at the option of the noteholders, at a rate of 444.44 shares of common stock per $1,000 principal amount of New Convertible Notes.

The provisions attached are that the conversion rate will increase to 460 shares of common stock per $1,000 principal amount of New Convertible Notes if converted during the first 60 days after the registration.

 The other provision entails that the conversion rate is likely to increase to 455.56 shares of common stock per $1,000 principal amount if converted during the second 60 days after the registration statement.  

The New Convertible Notes are convertible between 38 million and 39 million shares of the company’s common stock. The New Convertible Notes will mechanically convert at a rate of 444.44 shares per $1,000 principal amount of New Convertible Notes if the company’s stock price is at or above $2.65 per share based on a volume-weighted average price for ten out of fifteen consecutive trading days, subject to dividend, distribution or other customary adjustments.  The company expects that the exchanges will close on or around Dec 6, 2017.

Price Performance

Shares of the company have returned 73.7% compared with the industry’s rally of 17.2% in the last three months.

Zacks Rank & Other Key Picks

Denbury currently carries a Zacks Rank #1 (Strong Buy). Other prospective players in the energy sector include Holly Energy Partners, LP (HEP - Free Report) , ConocoPhillips (COP - Free Report) and Northern Oil and Gas Inc (NOG - Free Report) . All these stocks sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Holly Energy Partners, owner and operator of refined product pipelines and terminals, delivered an average positive earnings surprise of 57.14% in the preceding quarter.

ConocoPhillips, based in Houston, TX, is a major global exploration and production (E&P) company. It delivered an average positive earnings surprise of 152.34% in the last four quarters.

Northern Oil and Gas, based in Minnetonka, MN, is an independent energy company. The company delivered an average earnings surprise of 175.00% in the last four quarters.

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