Monday, February 7, 2011

Callon Petroleum (CPE) to Issue Stock and Redeem 13% Senior Notes

Callon Petroleum announced this morning that they will be selling up to 10.35 million shares of common stock in order to fund a portion of their 2011 capital budget, for general corporate purposes, and also to use $35.0 million of the net proceeds to redeem $31.0 million of its outstanding 13% Senior Notes due 2016 and pay the associated redemption premium.

The reason they are only redeeming $31 million of notes is because of the following provision from the note indenture:

Up to September 15, 2012, allow us to repay with the proceeds from a common stock offering or from liquidation of our Entrada properties up to 35% of the outstanding Exchange Notes at 113% of the principal amount thereof, plus accrued and unpaid interest. 
After September 15, 2012, they will be permitted to redeem the notes at any time, according to the following price schedule:
2013 106.5
2014 103.25
2015 101.625
2016 100% 
I have been saying all year that these notes were really underpriced. Since the company is selling stock to buy them back, they obviously agree with me.

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