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Rating Action:

Moody's assigns Baa2 rating to Wintershall Dea's notes; outlook stable

17 Sep 2019

Frankfurt am Main, September 17, 2019 -- Moody's Investors Service ("Moody's") has today assigned a Baa2 instrument rating to the senior unsecured notes ("notes") to be issued by Wintershall Dea Finance B.V. for the sole purpose of financing a loan to Wintershall Dea GmbH ("Wintershall Dea"). The outlook is stable.

RATINGS RATIONALE

The notes will be issued by Wintershall Dea Finance B.V., a company incorporated under the law of the Netherlands fully owned by Wintershall Dea. The proceeds will be used to refinance Wintershall Dea's EUR 3,700 million senior unsecured bridge facility due in May 2020. The notes will be unconditionally and irrevocably guaranteed by Wintershall Dea. We expect the rating of the bridge facility to be withdrawn, once it has been redeemed.

The Baa2 rating of the senior unsecured notes is at the same level as Wintershall Dea's issuer rating, as the notes will rank pari passu with other unsecured and unsubordinated obligations of Wintershall Dea. For Wintershall Dea we estimate Moody's adj gross debt/ EBITDA(X) LTM end of June 2019 to stand at around 2.5x, comparing to our expectations of around 2.2x. The deviation is due to: 1) somewhat higher adj. gross debt than assumed, which we expect to be repaid largely by the healthy cash balance; and 2) moderately weaker operating results than forecasted in H1 19. However, Moody's notes that overall, the group's results are in line with the agency's expectations for the Baa2 rating.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's expectation that Wintershall Dea will manage the merger integration and its considerable growth strategy without incurring significant additional amounts of debt and reduce shareholder distributions if necessary in order to maintain its Baa2 rating. The group's high share of gas revenues and its low average production costs at a very low USD4.80 per barrel should also help to stabilize earnings and cash flows in times of significant oil price volatility.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Upward pressure on Wintershall Dea's rating could built if the group would (1) increase the geographical diversification of its reserve and production profile, (2) maintain its proved developed reserve life at around 6 years, (3) reduce adj. debt / EBITDA(X) below 1.5x on a sustained basis, and / or (4) increase RCF/Debt towards 40% and maintain a conservative financial policy at the same time.

Albeit currently unlikely, absent a sharp and sustained drop in oil and gas prices or a significant adverse geopolitical event, Wintershall Dea's rating could be downgraded if the group (1) is unable to replace its depleting reserve base, (2) increases its adj. debt / EBITDA(X) above 2.5x on a sustained basis, (3) RCF to debt ratio declines towards 20% on a sustained basis and / or any weakening of its financial policy and liquidity.

ENVIRONMENTAL & GOVERNANCE CONSIDERATIONS

Government and societal efforts towards less carbon-intensive sources of energy pose a significant business and credit risk given the potential for these policies to slow future growth or even reduce demand for oil, gas and refined products. Oil demand is expected to peak within the next 10 to 15 years well before natural gas, which has a central role in the energy transition of power generation away from carbon. Wintershall Dea's production and reserve profile is majority from gas and hence, we expect the group to be relatively stronger positioned than most of its peers.

Until the envisaged IPO in the second half of 2020, Wintershall Dea will be governed by a combination of a supervisory board composed of representatives from BASF and LetterOne. We note at the same time that LetterOne has a track record of actively engaging in its companies' operations in order to protect its interest. However, BASF with 72.7% holds more than a two third majority and is likely to remain an important shareholder until at least 2021. We deem it highly likely that both shareholders will work closely together to facilitate a successful IPO.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Independent Exploration and Production Industry published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Wintershall Dea was created on May 1, 2019 as a result of the merger between BASF (SE)'s (A1, RUR) subsidiary Wintershall Holding GmbH and DEA Deutsche Erdoel AG. It is Europe's largest independent Oil & Gas Exploration & Production (E&P) company with 2018YE pro forma production of 590kboed, proved developed reserves covering its production for around 6.2 years (Moody's definition) and a 1P reserve life of around 15 years. BASF will own a majority stake of ultimately 72.7% and LetterOne the remaining 27.3%. The shareholders intend to list Wintershall Dea through an Initial Public Offering in the second half of 2020. The group reached pro forma annual sales of EUR6.3 billion and an EBITDAX of around EUR3.6 billion in 2018.

REGULATORY DISCLOSURES

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Janko Lukac
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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