New York, January 29, 2021 -- Moody's Investors Service, ("Moody's") assigned
a Caa3 rating to YPF Sociedad Anónima's (YPF) proposed senior secured
notes due 2026 and senior unsecured notes due 2029 and 2033. The
outlook is stable.
Net proceeds from the proposed issuance will be used for a tender offer
to exchange a combined principal of $6.2 billion corresponding
to seven international senior unsecured notes maturing in 2021,
2024, 2025 (both notes maturing in March and July), 2027,
2029 and 2047. YPF's proposed debt exchange offer, which
reflects requirements from the Argentine central bank (BCRA) to refinance
the 2021 notes, also aims to extend the maturity of its outstanding
financial debt and find financial relief for the company in 2021 and 2022,
and will not receive any cash proceeds from the issuance of the proposed
The rating of the proposed notes assumes that the final transaction documents
will not be materially different from draft legal documentation reviewed
by Moody's to date and assume that these agreements are legally valid,
binding and enforceable.
YPF Sociedad Anonima
- 4.0%/9.0% step up senior secured
notes due 2026, assigned Caa3
- 2.5%/9.0% step up senior unsecured
notes due 2029, assigned Caa3
- 1.5%/7.0% step up senior unsecured
notes due 2033, assigned Caa3
YPF's Caa3 ratings reflect the company's position as the largest integrated
oil and gas company in Argentina, with an extensive portfolio of
assets in the country including, among others, a large portfolio
of oil and gas concessions and reserves; refining assets that account
for over half Argentina's refining nameplate capacity; a broad network
of service stations and logistics assets; a petrochemical business
through Profertil S.A. (50% stake), fully integrated
with its refining and natural gas businesses; a separation and fractioning
of NGL business through Compañía Mega S.A.
(38% stake); and a power generation business through YPF Energía
Electrica S.A. ("YPF Luz", Caa3 negative),
a company jointly controlled with GE EFS Power Investments B.V.
Also incorporated in the rating are YPF's good credit metrics for
its rating category.
YPF Caa3 ratings also incorporate its links with the Government of Argentina
(Ca stable), its controlling shareholder, which combine YPF's
underlying caa3 baseline credit assessment (BCA), which expresses
a company's intrinsic credit risk, and our view of moderate support
from and high dependence on the Argentine government.
Key rating challenges for YPF's ratings are its concentration of operations
in Argentina, a moderate-to-high foreign-currency
risk given that most of the company's debt is denominated in foreign currency,
coupled with heightened refinancing risk as a result of more restrictive
capital controls imposed by the Argentina's Central Bank (BCRA) in September
2020; and its portfolio of majority mature producing fields and rigid
labor cost structure.
The company faces tight financial conditions in Argentina, where
the BCRA imposed new and more restrictive capital control requirements
on corporates to have access to the official foreign-exchange market
(Mercado Único y Libre de Cambios or MULC) on 16 September 2020.
According to the new regulation, companies that face financial capital
payments exceeding $1 million between 15 October 2020 and 31 March
2021 will only have access to the MULC to obtain foreign currency for
up to 40% of the face value, with an additional condition
of postponing the remaining 60% for at least an average life of
two years. The resolution does not restrict interest payments of
any kind and includes several exceptions, including trade finance,
multilateral loans and Export Credit Agencies (ECA).
YPF's exchange offer reflects the requirements from the BCRA to refinance
the 2021 notes´ maturity in March 2021, but it also aims to
extend the debt maturity profile and to relieve the oil company's liquidity,
freeing up funds for use toward its investment plan for 2021.
We consider the offer a distressed exchange because it may results in
economic losses for bondholders --depending on the exit yields used
by investors to value the proposed exchange offer-- and it allows
the company to avoid a potential default. But its losses would
be consistent with those of an oil and gas company with a Caa3 rating,
which considers an expected recovery rate of 65%-80%.
In addition to the exchange offer, YPF has released a consent solicitation
memorandum, which is subject to acceptance of more than 50%
of bondholders of the existing notes, to strip certain covenants
from the existing notes, such as the definition of events of default,
to make the exchange offer more appealing. The offer closes on
YPF's exchange offer will allow holders of senior unsecured notes maturing
in 2021, 2024, 2025 (both notes maturing in March and July),
2027, 2029 and 2047 with a combined principal of $6.2
billion to exchange their existing notes for a combination of three new
proposed notes maturing in 2026, 2029 and 2033 (plus a cash consideration
for holders of 2021 notes).
The proposed notes maturing in 2029 and 2033 will be senior unsecured.
The 2029 notes will accrue an interest coupon of 2.5% through
and including December 2022, and a 9.0% interest thereafter;
principal will be repaid in seven semiannual installments starting on
June 30, 2026. The 2033 notes will accrue an interest coupon
of 1.5% through and including December 2022, and a
7.0% interest thereafter; principal will be repaid
in four annual installments starting on September 30, 2030.
The proposed notes maturing in 2026 will be senior and secured,
backed by (1) the company's export revenue; and (2) will include
a pledge to YPF´s shares in YPF Luz. The company will keep
net cash proceeds from exports in an "Export Collection Account"
held with the offshore collateral agent (Citibank, N.A.)
in New York, United States, in an amount that represents the
lesser of (i) 120% of the sum of principal and interest payments
of the new 2026 senior secured notes due within the next 12 months,
and (ii) the aggregate net proceeds from exports during the 12-month
period prior. Citibank, N.A. will transfer
to a "Reserve and Payment Account" amounts deposited into
the Export Collection Account, to the extent available, in
line with the minimum coverage ratio of 125% of principal and interest
due over the next six months. Also, for so long as at least
50% of the original principal amount of the new senior secured
2026 notes is outstanding, the shares of YPF Luz, representing
approximately 50% of the outstanding capital stock and voting rights
of YPF Luz. The proposed 2026 notes will accrue an interest coupon
of 4.0% through and including December 2022, and a
9.0% interest thereafter; principal will be repaid
in 13 quarterly installments starting on February 12, 2026.
The proposed notes will also include a net leverage incurrence ratio covenant
that decreases to 3x in 2024 from 4x in 2021, which will be in place
up until the maturity of the proposed 2026 notes.
YPF has a tight liquidity profile. During 2020 YPF's sales and
liquidity deteriorated with lower local fuel demand and prices in dollar
terms amid the coronavirus related lockdown and economic turmoil and volatility
in Argentina. The company's liquidity also tightened with Argentina's
restrictions on corporate access to the international bond markets,
which stemmed from the government's debt crisis and tighter capital controls.
As of September 2020, YPF's Moody's adjusted total debt
--which includes lease liabilities-- amounted to ARS692 billion
($9.0 billion), of which of ARS171 billion ($2.2
billion) matured in the short-term. At the same time,
YPF held around ARS76,406 billion ($1.0 billion) in
cash and marketable securities, which represents 45% of short-term
liabilities. Also, as of September 2020, 93%
of YPF's reported financial indebtedness was denominated in foreign
currency, mainly in US dollars.
One of the objectives of the exchange offer is to relieve the company's
tight liquidity, freeing up funds that the company intends to use
for its $2.7 billion investment plan for 2021, higher
than the $1.6 billion of capital investment in 2020,
but well below the $3.5 billion in 2019. YPF intends
to ramp-up capital spending in its upstream segment in particular
(78% of 2021´s budget) in order to gradually increase production
of oil and gas through its conventional and unconventional resources (30%
and 48% of 2021´s budget, respectively). In
particular, YPF was recently awarded a four-year contract
to deliver 20.9 million cubic meters per day of natural gas in
the framework of Plan Gas 4, the new government-sponsored
gas development program.
YPF's stable outlook reflects our view that YPF's main shareholder,
the Argentine state (51% stake), will exert no influence
over the company to spend in capital expenditures or dividends beyond
its operating cash flow generation capacity and has incentives to maintain
prices of crude and oil products at a level that makes it economically
attractive for oil companies to invest to increase production and reduce
the country's dependence on imports of oil products and natural gas.
YPF´s creditworthiness cannot be completely de-linked from
the credit quality of the Argentine government, and thus its ratings
also incorporate the risks that it shares with the sovereign. Also,
the stable outlook reflects our view that possible losses for senior unsecured
creditors will not be greater than those associated with a Caa3 rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
YPF's ratings could be upgraded (1) if there is an upgrade of the government
of Argentina's Ca rating and YPF maintains good credit metrics for its
rating category; (2) if the company manages to grow total production
while maintaining good margins and relatively low leverage; (3) if
there is a more clear view of the government's energy policies for the
next several years and how they could affect YPF.
The ratings could be downgraded if (1) we believe possible losses for
senior unsecured creditors would be greater than those associated with
a Caa3 rating; (2) if the company loses access to credit markets
or lacks access to foreign currency to meet its debt service obligations;
(3) if the government of Argentina's Ca rating is downgraded. A
significant deterioration in the company's liquidity profile can also
lead to a rating downgrade.
The methodologies used in these ratings were Integrated Oil and Gas Methodology
published in September 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1172345,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
YPF is an Argentina-based integrated energy company, with
operations concentrated in the exploration, development and production
of crude oil, natural gas and liquefied petroleum gas, as
well as downstream operations engaged in the refining, chemical
production, retail marketing, transportation and distribution
of oil and petroleum products. Additionally, through YPF
Energía Eléctrica S.A. (Caa3 negative),
a company that YPF jointly controls with GE EFS Power Investments B.V.
("GE"), the company is also present in the power generation
sector. YPF is controlled by the Argentine state, which holds
51% of the company's shares.
As of September 2020, YPF accounted for 42% of the country's
oil production and 34% of natural gas, with a 55%
market share for gasoline and diesel. The company had proved oil
and gas reserves of 1,046 million barrels of oil equivalent (boe,
6,000 cubic feet = 1 boe) as of year-end 2019,
with net oil and gas production averaging 500,000 boe/day in 2019
and 479,000 boe/day as of the 12 months through September 2020.
Its reserve life (proved reserves) increased slightly, to 5.7
years in 2019 from 5.6 years in 2018.
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.
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