S&P: California Resources Corp. Upgraded To 'CCC+' From 'SD' On Completed Tender Offer; Outlook Negative
The issue-level and recovery ratings on the company's debt are unchanged.
"We raised the corporate credit rating on CRC to reflect our reassessment of its credit profile following the tender for its senior unsecured notes," said S&P Global Ratings credit analyst Paul Harvey. "The rating reflects our expectation that debt leverage will remain at what we consider unsustainable levels over the next 24 months despite the net-debt reduction of about $625 million from the tender," he added.
In addition, given its still high debt levels and continued weak crude oil prices, we view the cushion to financial maintenance covenants under its credit facility to be narrow. This largely offsets cost-cutting initiatives and CRC's ability to significantly reduce capital spending while limiting near-term production declines relative to the limited spending.
The negative outlook reflects CRC's still high debt levels and leverage that we consider unsustainable combined with liquidity that is limited by financial maintenance covenants and the potential for negative borrowing base revisions if crude oil prices fail to sustain the recent upward trend.
We could lower ratings if we reassessed CRC's liquidity as weak or we expected interest coverage to fall below 1x. Both scenarios are likely within the next 12 months if crude oil prices significantly fall below our price assumptions. Additionally, we could lower ratings if CRC fails to proactively address potential covenant violations expected in 2018.
We could return the rating outlook to stable if CRC can address the 2019 maturity of its first-lien first-out term loan and credit facility while maintaining adequate liquidity and improving financial measures.