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SM ENERGY: Revises Exchange Offer Terms, Wins Noteholder Support

SM Energy Company has amended its pending offers to exchange its outstanding notes for newly issued 10.00% senior secured notes due 2025 after reaching an agreement with certain holders of the Old Notes.

The terms and conditions of the Exchange Offers, as amended, are set forth in a supplement to the confidential offering memorandum and consent solicitation statement, dated April 29, 2020.

The new terms to be offered to eligible holders of the Old Notes in the Exchange Offers, as amended, are:

Principal Amount of New Notes per $1,000
Principal Outstanding Acceptance
Amount of Principal Priority Old Notes
Old Notes Amount Level Tendered
——— ———— ———- ———
6.125% Senior
Notes due
November 15, 2022 $436,047,000 1 $700
5.000% Senior
Notes due
January 15, 2024 $500,000,000 2 $600
5.625% Senior
Notes due
June 1, 2025 $500,000,000 3 $600
6.750% Senior Notes
due Sept. 15, 2026 $500,000,000 4 $580
6.625% Senior Notes
due Jan. 15, 2027 $500,000,000 5 $550

The Company previously offered this consideration for the Old Notes:

Principal
Amount of
New Notes
per $1,000
Principal
Amount of
Old Notes
Old Notes Tendered
——— ———
6.125% Senior
Notes due
November 15, 2022 $650
5.000% Senior
Notes due
January 15, 2024 $500
5.625% Senior
Notes due
June 1, 2025 $500
6.750% Senior Notes
due Sept. 15, 2026 $500
6.625% Senior Notes
due Jan. 15, 2027 $500

The maximum principal amount of New Notes to be issued in the Exchange Offers is $532.9 million, which, together with the New Notes to be issued in the private exchanges with certain holders of Old Notes, would amount to a maximum of $800 million principal amount of New Notes.

The New Notes will be secured by second priority security interests in the collateral that secures SM Energy’s senior secured credit facility. The New Notes will be SM Energy’s secured second lien obligations and will be effectively junior to the Company’s current and future secured first lien indebtedness, including its senior secured credit facility, to the extent of the value of the collateral securing such indebtedness, effectively senior to all of the Company’s existing and future unsecured indebtedness, including any Old Notes that remain outstanding following the completion of the Exchange Offers, to the extent of the value of the collateral, and senior to any future subordinated indebtedness. Interest on the New Notes will accrue from the date of issuance of the New Notes.

The Exchange Offers will expire at 11:59 p.m., New York City time, on June 12, 2020. The deadline has been extended a few times already.

Aside from receiving a principal amount of New Notes, participating holders will also receive, in cash, accrued and unpaid interest, if any, on their accepted Old Notes up to, but not including the settlement date for the Exchange Offers, which is expected to be on June 17, 2020.

Investors who have already tendered their Old Notes do not need re-tender their Old Notes or take any other action in order to participate in the Exchange Offers as amended and will receive the benefit of the amended terms without taking any further action. Tenders of Old Notes may be withdrawn and Consents may be revoked at any time at or prior to 11:59 p.m., New York City time, on June 12, 2020 (the “Withdrawal Deadline”).

Subject to proration, the amount of each series of Old Notes that is accepted for exchange will be determined in accordance with the acceptance priority levels set forth, with Acceptance Priority Level 1 being the highest Acceptance Priority Level and Acceptance Priority Level 5 being the lowest Acceptance Priority Level.

The “Maximum Exchange Amount” of New Notes that the Company will issue in the Exchange Offers equals $532.9 million aggregate principal amount of New Notes. If there is a sufficient amount of Old Notes available to exchange some, but not all, Old Notes of the series with the lowest Acceptance Priority Level that is accepted, then tenders of Old Notes of that particular series will be accepted on a pro rata basis. The Exchange Offers are not conditioned upon any minimum amount of Old Notes being tendered.

Backstop Deal

SM Energy has agreed with certain holders of Old Notes — the Backstop Group — to privately issue $213.5 million aggregate principal amount of New Notes in exchange for $316.4 million aggregate principal amount of Old Notes, consisting of $96.7 million principal amount of 6.125% Senior Notes due 2022, $74.6 million principal amount of 5.00% Senior Notes due 2024, $46.3 million principal amount of 5.625% Senior Notes due 2025, $37.7 million principal amount of 6.75% Senior Notes due 2026 and $61.2 million principal amount of 6.625% Senior Notes due 2027.

Holders of those Old Notes have also agreed to provide consents to certain proposed amendments to each indenture governing the Old Notes. In addition, the Backstop Group expects to tender $42.5 million aggregate principal amount of Old Notes in the Exchange Offers and the Company has agreed to issue to the Backstop Group warrants to acquire up to 5% of the outstanding common stock of the Company (subject to certain conditions).

The Company has also agreed to acquire $107.0 million principal amount of 1.50% Senior Convertible Notes due 2021 from the Backstop Group for consideration including $53.5 million principal amount of New Notes and $53.5 million in cash. In addition, $65.5 million in principal amount of Old Convertible Notes that remain outstanding will be secured pursuant to their terms on a pari passu basis with the New Notes (and any refinancing of such amount of Old Convertible Notes will be permitted to also be secured on a pari passu basis with the New Notes).

The total principal amount of New Notes that would be issued pursuant to these privately negotiated transactions and pursuant to the Exchange Offers based on the participation in the Exchange Offers to date, the additional tender of the Backstop Support Notes and the amended terms of the Exchange Offers is $452.8 million principal amount of New Notes. The closing of the privately negotiated transactions is expected to occur contemporaneously with the consummation of the Exchange Offers but is not conditioned on the consummation of the Exchange Offers. The New Notes issued in the privately negotiated transactions will be fungible with, and comprise one series with, the New Notes issued in the Exchange Offers.

In conjunction with the Exchange Offers, SM Energy is soliciting consents from holders of each series of Old Notes to certain proposed amendments to each indenture governing the Old Notes to eliminate substantially all of the restrictive covenants and certain of the default provisions contained therein. The Exchange Offers are not conditioned upon receiving requisite consents from holders any series of the Old Notes. Holders of Old Notes may not tender Old Notes without delivering the related Consents, and holders of Old Notes may not deliver Consents without tendering the related Old Notes.

To adopt the Proposed Amendments related to a series of Old Notes, SM Energy must receive Consents from holders representing a majority of the outstanding principal amount of such series Old Notes. If the Requisite Consents are delivered with respect to any series of Old Notes, a supplemental indenture to each Old Notes Indenture will be executed promptly following the Expiration Time to give effect to the Proposed Amendments. The Proposed Amendments will become operative, with respect to Old Notes for which Requisite Consents have been delivered and not validly withdrawn, immediately prior to the acceptance of such Old Notes pursuant to the applicable Exchange Offer. In the event that the Requisite Consents for a series of Old Notes are received and not validly revoked but the Old Notes of such series tendered in the applicable Exchange Offer are subject to proration, the Proposed Amendments with respect to such series of Old Notes will not become operative despite the Company accepting the Old Notes of such series in the applicable Exchange Offer.

Old Notes may not be withdrawn from the Exchange Offers and the related Consents may not be revoked from the Consent Solicitations after the Withdrawal Deadline, unless otherwise required by applicable law.

Credit Agreement Revised

On May 5, 2020, SM Energy entered into the Fourth Amendment to the Sixth Amended and Restated Credit Agreement by and among the Company, Wells Fargo Bank, National Association, as Administrative Agent, and the institutions named therein as Lenders that are party thereto.

The Fourth Amendment modifies the Credit Agreement to reduce the amount of secured second lien debt that the Company may incur in connection with the Exchange Offer or any similar exchange from $900.0 million to $827.5 million.

In addition, the Fourth Amendment permits the Company to grant a second-priority security interest to the holders of the Company’s outstanding 1.500% Senior Convertible Notes due 2021 to secure the Company’s obligations under the 2021 Notes. As a result, the Company may grant second lien security interests on debt incurred in the Exchange Offer plus the existing 2021 Notes in an aggregate amount up to $1.0 billion.

The members of the lending consortium are:

* WELLS FARGO BANK, NATIONAL ASSOCIATION, Individually and as Administrative Agent, Swingline Lender and Issuing Bank

* BANK OF AMERICA, NATIONAL ASSOCIATION, Individually and as Co-Syndication Agent

* JPMORGAN CHASE BANK, N.A., Individually and as Co-Syndication Agent

* BBVA USA, (f/k/a COMPASS BANK), Individually and as Co-Documentation Agent

* COAMERICA BANK

* ROYAL BANK OF CANADA

* BOKF, NA DBA BANK OF OKLAHOMA

* GOLDMAN SACHS BANK USA

* KEYBANK NATIONAL ASSOCIATION

* THE BANK OF NOVA SCOTIA, HOUSTON BRANCH

* BMO HARRIS BANK N.A.

The Exchange Offers are being made, and the New Notes are being offered and issued, only (a) in the United States to
holders of Old Notes who are reasonably believed to be “qualified institutional buyers” (as defined in Rule 144A under the Securities Act) and (b) outside the United States to holders of Old Notes who are persons other than U.S. persons in reliance upon Regulation S under the Securities Act. The holders of Old Notes who have certified to the Company that they are eligible to participate in the Exchange Offers pursuant to at least one of the foregoing conditions are referred to as “Eligible Holders.” Only Eligible Holders who have completed and returned an eligibility letter, available from the information agent, may receive and review the Offering Memorandum or participate in the Exchange Offers. Eligible Holders of the Old Notes who desire to obtain and complete an eligibility form should contact the information agent and exchange agent, D.F. King & Co., Inc., at (866) 620-2536 (toll-free) or (212) 269-5550 (for banks and brokers), email sm@dfking.com or online at www.dfking.com/smenergy.

The New Notes and the Exchange Offers have not been and will not be registered with the U.S. Securities and Exchange Commission under the Securities Act, or any state or foreign securities laws. The New Notes may not be offered or sold in the United States or for the account or benefit of any U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.

About SM Energy

Denver, Colo.-based SM Energy Company (NYSE: SM) is an independent energy company engaged in the acquisition, exploration, development, and production of crude oil, natural gas, and NGLs in the state of Texas.

At March 31, 2020, the Company had $5.6 billion in total assets and $3.2 billion in total liabilities.

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