S&P: Teine Energy Ltd. Senior Unsecured Note Rating Raised To 'B' From 'B-'; Recovery Rating Revised To '3' From '5'
At the same time, S&P Global Ratings affirmed its 'B' long-term corporate credit rating on Teine. The outlook is stable.
"The upgrade reflects our view that Teine's senior unsecured noteholders could expect meaningful recovery in our default scenario," said S&P Global Ratings credit analyst Wendell Sacramoni. The recovery rating change reflects our use of a PV-10 valuation of the company's reserves, based on our price and cost assumptions in the scenario.
The 'B' corporate credit rating reflects Teine's enhanced daily production, reserves base, and proved developed ratio following the Penn West assets acquisition. Partially offsetting these factors are the execution and integration risk, given the relative size of these assets, and the deterioration in credit metrics from the lower hydrocarbon prices and the higher debt and asset retirement obligations.
The stable outlook reflects our view that the increase in Teine's daily production will fuel improved credit metrics in 2017 and 2018 as the company incorporates the cash flow generation from the new acquired assets, resulting in FFO-to-debt above 20% and debt-to-EBITDA below 4x in the next 12 months while maintaining an adequate liquidity position.
We could lower the ratings if Teine's credit measures weaken such that FFO-to-debt consistently falls below 20% and debt-to-EBITDA increases above 4x while FOCF-to-debt remains negative. This scenario would likely also pressure liquidity given the potential for covenant headroom to tighten or availability on the company's revolving credit facilities to be re-determined at a lower level.
We could raise the ratings if Teine is able to consistently improve its scale of operations and full-cycle cost while maintaining FFO-to-debt above 20%, debt-to-EBITDA below 4x and adequate liquidity.