Matador Resources, fresh off closing a $1.83 billion deal for Ameredev II, intends to offer $750 million in unsecured notes, due 2033, in a private placement.

“The company intends to use the net proceeds from the notes to repay borrowings under the reserve-based lending credit facility (RBL) following close of the Ameredev II Parent, LLC (Ameredev) acquisition and for general corporate purposes,” Fitch Ratings said in a Sept. 20 review of the offering.

Matador said on Sept. 20 it intends to use the net proceeds from the offering to repay borrowings outstanding under Matador's credit facility, including all of the $250 million in outstanding borrowings under Matador's term loan.

The notes and related guarantees have not been registered under the Securities Act of 1933 and will not be made available to the public.

Fitch Ratings assigned a 'BB-'/'RR4' rating to Matador Resources' proposed senior unsecured notes. BB ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time, according to Fitch.

Matador's rating reflects Fitch's expectation of increased size and scale following close of the Ameredev transaction and reduction of RBL borrowings post-close, “which will reduce leverage in 2025,” the credit ratings firm said.

Fitch said the Ameredev acquisition was moderately leveraging to Matador in the near-term, given the large debt component of the funding mix, and will temporarily reverse the headroom Matador built up following the $1.6 billion acquisition of Advance Energy Partners’ assets in 2023.

“Fitch recognizes that the management team does have a track record of deleveraging post-acquisitions and the agency believes this is further supported by the high-quality assets that were acquired along with the company's historically strong FCF generation,” the firm said.

Fitch said it views the Ameredev assets favorably as they are contiguous to existing Matador acreage, largely HBP and will add high-margin, undeveloped, oil-weighted inventory. The assets include approximately 33,500 net acres in the Delaware Basin, an estimated 25,500 boe/d (65% oil) and 371 net (431 gross) operated locations to Matador's existing profile.

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The transaction also expands Matador's midstream footprint via a 19% stake in Piñon Midstream, with assets located in southern Lea County, New Mexico. Enterprise Products Partners said in August it will acquire Piñon Midstream for $950 million cash.

Matador management intends to operate a total of nine drilling rigs in the near-term on the combined acreage base, which Fitch said should average 180,000 boe/d going forward.

“The company continues to target its Wolfcamp A and lower Bone Spring intervals, but has also seen strong well results in the Avalon and upper Bone Spring across the acreage position,” Fitch said.

Fitch said the Ameredev assets will likely support continued strong free cash flow generation for the company.

“Fitch believes near-term FCF generation will be aimed at reducing the post-close RBL borrowings which will improve liquidity and reduce leverage,” the firm said.

Fitch forecasts Matador's leverage will increase to 1.7x in 2024 and fall toward 1.5x in 2025 following repayment of RBL borrowings and post-close debt reduction. Debt reduction will be further supported by the company's increased hedging which will help lock in returns and cash flow.

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