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Rating Action:

Moody's assigns a Ba3 rating to Trinidad Holdings and its proposed notes and term loan; withdraws Petrotrin's CFR

16 Apr 2019

New York, April 16, 2019 -- Moody's Investors Service (Moody's) assigned a Ba3 Corporate Family Rating (CFR) and a b2 Baseline Credit Assessment (BCA) to Trinidad Petroleum Holdings Limited (Trinidad Holdings). Simultaneously, Moody's assigned a Ba3 rating to Trinidad Holding's proposed up to $425 million in guaranteed senior secured notes and a Ba3 rating to the company's proposed senior secured term loan. Both the proposed notes and term loan will be guaranteed by Heritage Petroleum Company Limited (Heritage) and other smaller subsidiaries of Trinidad Holdings. Proceeds from the transactions will be used primarily to repay Petroleum Co. of Trinidad & Tobago (Petrotrin)'s 2019 and 2022 senior notes. The outlook on the ratings is stable. This is the first time that Moody's assigns ratings to Trinidad Holdings.

At the same time, Moody's withdrew Petroleum Co. of Trinidad & Tobago (Petrotrin)'s CFR and upgraded the senior unsecured debt rating on the company's existing 2019 and 2022 notes to Ba3 from B1. This rating action completes the rating review started in September 2018, which was triggered primarily by increasing liquidity risk related to the approaching maturity of the 2019 bonds.

ISSUERS AND RATINGS ASSIGNED/AFFECTED

Assignments:

..Issuer: Trinidad Petroleum Holdings Limited

.... Baseline Credit Assessment, Assigned b2

.... Corporate Family Rating, Assigned Ba3

....Gtd Senior Secured Bank Credit Facility, Assigned Ba3

....Gtd Senior Secured Regular Bond/Debenture, Assigned Ba3

Ratings affected:

..Issuer: Petroleum Co.of Trinidad & Tobago (Petrotrin)

....Corporate Family Rating, Withdrawn, previously rated B1

....Senior Unsecured Regular Bond/Debenture, upgraded to Ba3 from B1

....Underlying Senior Unsecured Regular Bond/Debenture, upgraded to Ba3 from B1

Outlook Actions:

..Issuer: Trinidad Petroleum Holdings Limited

....Outlook, Assigned Stable

..Issuer: Petroleum Co.of Trinidad & Tobago (Petrotrin)

....Outlook, Changed To Stable From Rating Under Review

RATINGS RATIONALE

Trinidad Petroleum Holdings Limited

The Ba3 ratings on Trinidad Holdings and its proposed notes and term loan are based on a b2 BCA, which reflects the company's intrinsic credit risk regardless of government support considerations. In turn, Trinidad Holdings' BCA is based on the credit profile of Heritage, the former's main operating subsidiary. Heritage's credit profile considers its small oil and gas production and asset base; lack of detailed historical financial and operating information; and expectation of solid cash generation and a rapid turnaround in production, which has been declining in the last several years. Heritage's experienced management profile also supports Trinidad Holdings' ratings.

Heritage's credit metrics reflect Moody's estimates of solid operating cash flow from stable oil and gas prices, disciplined cost management and increasing production, now that management is focused only in oil and gas Exploration and Production (E&P). For example, Moody's estimates that, in 2019, Heritage's leverage ratio will be below 4.5x times debt/EBITDA (net of government loans) and operating cash generation will be over $260 million, both solid credit indicators for the b2 BCA category.

However, Heritage's reserve life is low at about 6 years, which increases execution risk. Despite the company's long operating history, only recently the E&P industry became a core business. Therefore, in order to reach an annual reserve replacement rate of above 100%, as planned, Heritage will have to reduce its operating costs significantly and work closely with partners to increase capital efficiency and grow efficiently. Because of Heritage's current focus on E&P and the caliber of some of its partners (Shell Oil Company, rated Aa3 stable, and EOG Resources Inc., rated A3 stable), Moody's believes that it is probable that the company will be successful in achieving its production and reserve replacement rate targets. However, execution risk is high.

Since Trinidad Holdings' is 100% owned by the Government of Trinidad & Tobago (Trinidad, Ba1 stable), the company's Ba3 rating reflects the application of Moody's joint default rating methodology for government-related issuers (GRIs). Trinidad Holdings' Ba3 rating benefits from two notches of uplift from the b2 BCA given Moody's assumption of a high probability of support from the government of Trinidad in a distress situation. Trinidad Holdings is strategically important to the energy sector in Trinidad as demonstrated by its relevant contribution to the government's fiscal budget of over 6% of total in 2018 and its 60% market share of the country's E&P production. The government directly appoints the majority of the company's board members and is closely involved in Trinidad Holdings' budget approval and business strategy. The government's ability to provide support to the company is measured by its Ba1 rating, weakened by the very high correlation between the government and the company on credit factors that could cause stress on both simultaneously.

Heritage has adequate liquidity. Moody's expects the company to keep $200 million in cash at all times, which favorably compares to annual interest payments of about $100 million, pro forma for the new transactions. Moody's also expects Trinidad Holdings to maintain a comfortable debt maturity profile after the closing of the proposed transactions; the company also counts with the government of Trinidad to support its liquidity position, in case of need.

The stable outlook on Trinidad Holdings' Ba3 ratings reflects Moody's expectation that Heritage will successfully execute its business plan, while maintaining sound credit metrics; it also considers that prices for oil and gas will remain relative stable over the next 12 to 18 months.

Trinidad Holdings' Ba3 ratings could be upgraded if Heritage manages to increase production and reserve life efficiently, with minimal deterioration in its financial metrics. Quantitatively, an upgrade would require that its debt/proved and developed reserves is consistently below $6 and EBITDA/interest expenses is well above 5 times. An upgrade on the ratings of the government of Trinidad would not necessarily translate into an immediate upgrade of Trinidad Holding's ratings.

Trinidad Holding's Ba3 ratings could be downgraded if Heritage's retained cash flow (funds from operations less dividends) to total debt declines to around 15%, or if its interest coverage, as per EBITDA to interest expense, falls to below 2.5 times with limited prospects of a quick turnaround. In addition, a deterioration of Heritage's liquidity profile coupled with a slow execution of is growth plans could lead to a rating downgrade or if the rating on the government of Trinidad is downgraded.

Trinidad Petroleum Holdings Limited is a holding company 100% owned by the Government of Trinidad & Tobago and focused on oil and gas production. The holding company has four operating subsidiaries.

Petroleum Co. of Trinidad and Tobago (Petrotrin)

The upgrade of rating on Petrotrin's notes to Ba3 from B1 was based on the credit quality of its guarantor, Heritage, and on the strong support from the government of Trinidad on the company's bond exchange offering, which reduced Petrotrin's liquidity risk. On April 15, Petrotrin announced an offer to exchange its existing outstanding notes due 2019 and 2022 for Trinidad Holdings' (its parent company, Ba3 stable) new notes and new term loan.

In August 2018, the government of Trinidad announced the closing of Petrotrin's sole refinery, which raised its credit risk. More recently, the government announced a reorganization of Petrotrin's business into the holding company Trinidad Holdings and its four subsidiaries.

Based in Pointe-a-Pierre, Trinidad, Petrotrin is a non-operating energy company 100% indirectly owned by the government.

The methodologies used in these ratings were Independent Exploration and Production Industry published in May 2017, Refining and Marketing Industry published in November 2016, and Government-Related Issuers published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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No Related Data.
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