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07 Oct 2010
Outlook remains stable
New York, October 07, 2010 -- Moody's Investors Service assigned a B2 rating to Hilcorp Energy I,
L.P. (Hilcorp) proposed $300 million senior unsecured
notes due 2021. Hilcorp will use the proceeds to finance the acquisition
of oil and natural gas properties in south Louisiana and Texas for a purchase
price of $245 million with the remaining proceeds available for
general corporate purposes. The outlook is stable.
"This acquisition is a continuation of Hilcorp's strategy
to acquire older properties with a base level of production and to create
value by exploiting their over-looked potential," according
to Stuart Miller, Moody's Vice President. "The
acquired properties are located in areas where Hilcorp already has a presence
and considerable expertise."
Hilcorp's B1 Corporate Family Rating (CFR) accommodates the fact
that the acquisition is being 100% debt financed, and as
a result, Hilcorp's leverage will increase. However,
Hilcorp's track record of extracting value out of similar types
of properties makes us comfortable that the increase in leverage will
be temporary. As remedial work is performed and development wells
are drilled, the increase in reserves and production rates should
support the higher debt load and reinforce the B1 CFR. The B2 senior
note rating, one notch lower than its B1 Corporate Family Rating,
reflects the relative position of the senior notes in Hilcorp's capital
structure, behind the senior secured revolving credit facility.
Hilcorp's operations are focused in the Gulf Coast in fields with
extensive production histories. With over 5,100 wells in
more than 200 fields, Hilcorp's reserves are well diversified
with little concentration risk. Hilcorp operates approximately
97% of its net production providing the ability to manage the timing
of expenses and priorities for its capital budget. The company
has identified an inventory of 900 major projects which represents a three
year inventory. These relatively low risk projects will enable
Hilcorp to continue to report finding and development costs at levels
close to its current three year level of $12.30, a
level that maps to an "A" rating according to Moody's
E&P Industry Methodology Grid.
Pro forma for the proposed senior note offering and the acquisition,
Hilcorp's debt to proved developed reserves and debt to average
daily production are expected to increase to $11 per BOE and $23,000
per BOE per day, respectively. These leverage metrics are
comparable to peer companies with B1 Corporate Family Ratings.
Hilcorp has consistently increased reserves and production through its
acquire and exploit strategy while managing its leverage within a narrow
band over a number of industry cycles. For these reasons,
we believe the increase in leverage will be temporary and is manageable
within its current ratings.
From a liquidity standpoint, after giving effect to the issuance
of the senior notes, the company will have a little over $300
million available under the borrowing base of its senior secured revolving
credit facility which matures in July 2012. On a pro forma basis,
there is sufficient cushion to expect ongoing compliance with the financial
Hilcorp's ratings would be negatively impacted by another sizeable,
debt financed acquisition prior to a reduction in its leverage ratios.
Alternatively, under the existing distribution policy employed by
Hilcorp, a positive rating action is unlikely unless there is a
significant reduction in leverage.
The principal methodology used in rating Hilcorp Energy I, L.P
was Global Independent Exploration and Production Industry rating methodology
published in December 2008, and Loss Given Default for Speculative-Grade
Non-Financial Companies in the U.S., Canada
and EMEA published in June 2009. Other methodologies and factors
that may have been considered in the process of rating this issuer can
also be found on Moody's website.
Hilcorp is a private limited partnership based in Houston, Texas
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service's information, confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
MOODY'S adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
MOODY'S considers to be reliable including, when appropriate,
independent third-party sources. However, MOODY'S
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns a B2 rating to Hilcorp Energy I, L.P. $300 million senior notes
250 Greenwich Street
New York, NY 10007
No Related Data.
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