UPDATE: Apache Has $5B Bridge Loan For BP Deal, Won't Use It

22nd Jul 2010 16:37

(Updates to add dropped words in 10th paragraph) By Katy Burne Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Apache Corp. (APA) said Wednesday that it would employ an array of financing tools in its $7 billion acquisition of oil and gas fields from BP PLC (BP, BP.LN), including cash, revolving loans, term loans, stock sales and convertible bonds. What it won't use is the $5 billion bridge loan it arranged late Tuesday. "We've laid out a financing plan [for the BP assets] that doesn't include the bridge loan. If the other pieces fall into place, we won't need [it]," said Bill Mintz, a spokesman for the Houston exploration and production company. The preliminary financing plan calls for using $1.5 billion of cash on hand, $700 million in commercial paper, a $1 billion one-year bank facility, $1 billion in term debt and $2.8 billion in common and mandatory convertible securities. Under the terms of the all-cash transaction, Apache is buying three of BP's regional businesses: its operations in the Permian Basin of eastern New Mexico and West Texas; part of BP's Western Canadian Sedimentary Basin upstream operations; and its Egyptian Western Desert business. The deal "plays to Apache's core competence of adding value to underworked assets," the company said in a regulatory filing, noting it would remain "committed to a balanced and conservative financing plan." Apache has to pay a $5 billion deposit to BP by July 30, and the remaining $2 billion later this year, provided the deal gets regulatory clearance. As it announced the deal, Apache filed with the Securities and Exchange Commission to sell 21 million shares of common stock and $1.1 billion of mandatory convertible preferred stock. Company executives are already visiting investors and lender in New York and Boston to negotiate terms, said Mintz. Adam Miller, analyst at Fitch Ratings in Chicago, said he anticipated that Apache will likely refinance its short-term credit facilities down the line with longer-term debt. The BP deal will be Apache's third acquisitions this year; the deals cost a combined $12 billion, and after completion the company will have $9.5 billion to $10 billion in debt. The company's cash flow as of June 30 rose 17% from a year earlier to $1.83 billion, and cash from operations, before changes in operations assets and liabilities, stood at $1.8 billion, up 46% from a year earlier. "I think they want to maintain flexibility in terms of how they fund the remaining amount," said Miller. Apache's acquisition of $1.05 billion of offshore assets in the Gulf of Mexico from Devon Energy (DVN) was funded with cash earlier this year; while a $3.93 billion planned acquisition from Mariner Energy (ME) is being met with cash, commercial paper and equity. "Historically, Apache used its free cash flow for acquisitions [or share repurchases], which we think precluded ratings upgrades," wrote Phil Adams, senior investment grade analyst at Gimme Credit, an independent research service on corporate bonds, in a note. Earlier Wednesday, Fitch put Apache on rating watch negative after the BP acquisition news, reflecting the additional leverage that would be taken on to close the deal and anticipated higher capital expenditures. If the deal progresses as announced, Fitch said it would likely downgrade the company's issuer default ratings to BBB+ from A-, unless the company issued more equity than expected or sold assets, speeding up its deleveraging. Moody's Investors Service also put the company on review for downgrade, but noted that it would only be by a single notch. "While substantial existing cash and equity will fund the BP transaction, that leverage is amplified by the fairly low proportion of production and producing reserves relative to the price paid for the BP assets," wrote Moody's senior credit officer, Andrew Oram. Apache's near-term maturity schedule involves $400 million of debt coming due in 2012 and some smaller repayments due on a credit line in Australia. -By Katy Burne, Dow Jones Newswires; 212-416-3084; [email protected] (END) Dow Jones Newswires July 22, 2010 11:37 ET (15:37 GMT)