In a process to strengthen its balance sheet Devon Energy (DVN) announced that it will redeem all outstanding $350 million 7.25% Senior Notes due 2011.
The Notice of redemption was sent to the registered holders on May 25, 2010. The Bank of New York Mellon Trust company is appointed as trustee and paying agent for the notes.
Devon will repay to the debenture holders 100% of the principal amount, plus accrued and unpaid interest, as well as a make-whole premium. The company will pay the accrued interest for the period from April 1, 2010, up to, but excluding, the redemption date of June 25, 2010. In terms of indenture agreement, the company will calculate the make-whole premium.
During the first quarter earnings call, Devon announced that it had repaid $1.2 billion worth of debts out of the sale proceeds of three lower tertiary discoveries in the deepwater Gulf of Mexico and ended the quarter with a debt-to-capital ratio of 22%. Through repayment of $350 million senior notes the company will continue to reduce its debt burden and improve on its debt-to-capital ratio.
Devon Energy’s major competitors are BP plc (BP) and ConocoPhillips (COP). On a competitive landscape, the net margin of the company is much higher than its peers. The consistent repayment of debts will further improve its net margin through reduction of interest expenses.
Our View
We appreciate Devon Energy’s initiatives to reduce debts and ability to prudently manage its balance sheet. However, we expect the present, constrained commodity environment to continue to weigh on Devon’s financial performance and hence maintain a Neutral outlook on the company.
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