Veren Inc T.VRN

TD

[retiredcf]

Have a $14.00 target. GLTA

ACHIEVES IG CREDIT RATING MILESTONE; ANNOUNCES $1.0BLN AGGREGATE NOTES OFFERING

THE TD COWEN INSIGHT

We believed a potential catalyst for Veren could be achieving an investment-grade credit rating on the back of multiple years of asset repositioning and a series of non-core asset sales. These factors materially improved its inventory and de-levered the balance sheet. That said, this achievement came sooner than we had anticipated and prior to any potential infrastructure dispositions.

Event: Announces Offering of Investment-Grade Senior Notes After Obtaining an Investment-Grade Credit Rating.

Impact: POSITIVE

• Receives Investment-Grade Credit Rating from DBRS: Veren received a rating of BBB (low) with a Stable trend issued by DBRS. In our view, the rating is important as it allows access to lower-cost debt that will be used to repay its current bank credit facility and retire note maturities.

• Announces Senior IG Notes Offering of $1bln: In conjunction with the IG credit rating, Veren announced an offering of senior unsecured notes, including $550mm of 5-year notes with a 4.968% coupon and $450mm of 10-year notes with a 5.503% coupon (both priced at par).

• Although the notes being offered carry a higher coupon than all currently outstanding senior notes (given the rise in interest rates), Veren should still see a reduction in total interest costs going forward, given some of the proceeds will go to repaying the credit facility in full. For context, the company's effective interest rate on all long-term debt in Q1/24 was 6.5%.

• Based on current strip pricing, but before incorporating this debt financing into our assumptions, we estimate that Veren is on track to exit 2024E with D/CF of 1.1x, improving to 0.9x by YE-2025E.

• We Expected Continued Debt Repayment, then a Bump in RoC: Once the company reaches its net debt target of $2.2bln, we expect Veren to increase its return-of-capital framework. In our view, this will most likely take the form of increased NCIB participation and concurrent base dividend increases as the share count erodes.

• We estimate that this debt target could be achieved organically by YE-2025E (under a strip-pricing scenario). However, there is the potential that this will happen earlier if the company opts to execute incremental divestitures (potentially infrastructure) as we had previously expected. (here)