Fitch Ratings has downgraded Pacific Exploration and Production Corp.
(Pacific) foreign and local long-term Issuer Default Ratings (IDRs) to
'C' from 'CCC'. Fitch has also downgraded to 'C/RR4' from 'CCC/RR4' its
long-term rating on Pacific's outstanding senior unsecured debt
issuances totaling approximately USD4 billion with final maturities in
2019 through and 2025.
KEY RATING DRIVERS
Interest Payment Postponement
The downgrade reflects Pacific's announcement on Jan. 14, 2016 that the
company has elected to not make its scheduled interest payments on its
5.625% notes due Jan. 19, 2025 and its 5.375% notes due Jan. 26, 2019.
The company intends to utilize its 30 day grace period pursuant to the
indentures governing its respective notes. Should the company not make
interest payments following the 30 day grace period, Fitch will
downgrade the company's IDRs to Restricted Default (RD).
Severely Pressured Capital Structure and Liquidity
The rating action is consistent with Fitch's expectations that the
company's capital structure would weaken to an unsustainable level over
the near term as a result of the current decline of global oil prices to
the USD30/bbl level. The company's ratings also incorporates the
company's delay in the sale of assets to bolster liquidity as well as
delays in reaching an agreement with the company's syndicate of lenders
under its USD1 billion revolving credit facility and other bank loans.
Towards the end of December 2015, the company received a 61 day waiver,
which expires on Feb. 26, 2016, for some maintenance covenants included
in these facilities. This waiver is concurrent to a previous 90 day
Pacific's credit metrics have been materially affected by the sharp
decline in oil prices, as well as the company's debt increase during
2015. Total and net debt/EBITDA for the latest 12 months (LTM) ended
September 2015 have increased to 4.3x and 3.9x, from 1.9x and 1.8x, as
of year-end 2014. This was mostly due to due to the decline in global
oil prices as well as Pacific's debt increase of more than USD600
million during first-half 2015. Positively, Pacific reported zero
short-term debt as of September 2015.
A negative rating action would be triggered by the company not making
its interest payments following the expiration of the 30 day grace
period for its 5.625% notes due Jan. 19, 2025 and its 5.375% notes due
Jan. 26, 2019.
A positive rating action is unlikely in the medium term.
LIQUIDITY AND DEBT STRUCTURE
Weak Liquidity Position: The company's liquidity position versus debt
amortizations as of Sept. 30, 2015 was adequate, with Pacific reporting
$489 million of cash on hand and zero short-term debt. The company's
debt amortization schedule is spread between 2017 and 2025 with an
average of $1 billion coming due every two years. Fitch estimates that
Pacific's half-cycle costs (i.e., the cost to maintain current liquids
production and cover interest expense) is approximately $32/bbl. At
current $30/bbl global prices, the company would not manage to cover its
production and interest payment costs in the short to medium term. The
company's liquidity could improve if the company succeeds at selling
some none-core assets and if global oil prices rebound significantly
from current levels.
Fitch has downgraded the following ratings:
Pacific Exploration and Production Corp.
--Foreign and local currency IDRs to 'C' from 'CCC';
--International senior unsecured bond ratings to 'C/RR4' from ' CCC/RR4'.
Additional information is available on www.fitchratings.com
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
Dodd-Frank Rating Information Disclosure Form
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
View source version on businesswire.com: http://www.businesswire.com/news/home/20160115005926/en/
Copyright Business Wire 2016