Devon Energy Corp. is taking advantage of low interest rates and relatively strong credit to borrow $2.5 billion in long-term debt, the Oklahoma City energy company said Wednesday.
Devon said it will use the money to pay off existing debt and fund other operations.
“Essentially we have decided to take the bond issue as a way of refinancing our short-term debt into longer-term debt at rates that are at all-time lows,” Devon spokesman Chip Minty said.
The new debt is in the form of three series: $750 million in 1.875 percent notes due in 2017, $1 billion in 3.25 percent notes due in 2022 and $750 million in 4.75 percent notes due in 2042.
Fitch Ratings this week assigned the notes a BBB+ investment-grade rating.
“Devon's ratings reflect the company's large, low cost, proven reserve base in North America, its significant and growing production, its conservative financial strategy and robust credit profile,” Fitch said in its report.
Devon said it will use the cash to repay $1.7 billion in existing loans due within the next 30 days.
Tulsa money manager Jake Dollarhide praised the financing deal.
“For Devon and any company that wants to issue bonds at this point, the time is ticking,” said Dollarhide, CEO of Longbow Asset Management Co. in Tulsa. “We're in an ultralow interest rate environment. The Fed has promised to keep rates artificially low through 2013, but with any up tick in our economy, these rates may not last much longer.”
Cash is available
Devon's move comes even as the company is sitting on more than $7.1 billion in cash. But most of that free cash is from the sale of international assets and nearly all is being held in offshore banks. If Devon were to bring that money to the United States, it would face a tax bill of more than $1 billion.
“We're hoping in the future the government will grant a repatriation tax holiday as an incentive for not just us, but all U.S. corporations with offshore cash to bring the cash home,” Minty said. “But for now, we're leaving it offshore.”
Dollarhide said Devon is in good position to wait.
“Tax holidays don't come easily, and certainly right now I don't think you can necessarily predict what is going to happen,” Dollarhide said.
“The good news is they have the cash they can get to anytime if they need it. And this bond deal gives them more access to U.S. cash now at a relatively low cost.”