Southwestern Energy Company — Moody's rates Southwestern Energy's new unsecured notes Ba3
Rating Action: Moody’s rates Southwestern Energy’s new unsecured notes Ba3
Global Credit Research – 18 Aug 2020
New York, August 18, 2020 — Moody’s Investors Service, (“Moody’s”) assigned a Ba3 rating to Southwestern Energy Company’s (Southwestern) proposed senior unsecured notes. Southwestern’s other ratings and outlook remain unchanged. Southwestern’s unsecured debt issuance will be used to refinance the remaining 8.875% notes at Montage Resources Corporation (Montage, B2 under review upgrade) at the close of its acquisition of Montage. The acquisition, which is subject to Montage’s shareholder approval and regulatory reviews, is expected to close in the fourth quarter 2020.
Assignments:
..Issuer: Southwestern Energy Company
….Senior Unsecured Notes, Assigned Ba3 (LGD4)
RATINGS RATIONALE
The proposed and existing senior unsecured notes are rated Ba3, as a result of the secured nature and priority claim of the ABL revolver with $1.8 billion borrowing base. Due to the size of the claim of the secured debt, the senior notes are rated one notch beneath the Ba2 Corporate Family Rating (CFR).
Southwestern’s Ba2 CFR reflects its sizeable production and reserves base and low finding and development costs that are among the best in the industry. Southwestern has a supportive hedge position in 2020 and 2021 for its hydrocarbon streams — natural gas, condensate, and other natural gas liquids. The company will continue to have supportive cash flow and capital efficiency metrics, as well as strong production and reserve-based leverage metrics due to meaningful reduction in absolute debt since 2016. However, Southwestern is challenged by its natural gas weighted production profile (over 75% of expected 2020 production) and high reserves concentration. Southwestern is exposed to prolonged weakness in natural gas prices, which are likely to remain range-bound over the next several years and compounded by the negative basis differentials the company faces in its Appalachian focused production.
The acquisition of Montage is favorable for Southwestern because it adds to the company’s Appalachian acreage in both Marcellus super rich gas and Utica dry gas windows and will marginally improve its leverage profile post-acquisition given Montage’s low financial leverage and the incremental equity offering by Southwestern.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
We could consider an upgrade if the company sustains retained cash flow to debt over 35% and the leveraged full-cycle ratio (LFCR) approaches 2x in a meaningfully improved commodity price environment. The Ba2 CFR could be downgraded if the retained cash flow to debt ratio drops below 20% or if LFCR falls below 1x for a sustained period.
Southwestern Energy Company is a US independent exploration and production (E&P) company headquartered in Houston, Texas.
The principal methodology used in these ratings was Independent Exploration and Production Industry published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Arvinder Saluja, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Steven Wood MD - Corporate Finance Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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