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Related Issuers
Rating Action:

Moody's changes Laredo's outlook to stable from positive; downgrades notes to B3

13 Nov 2019

New York, November 13, 2019 -- Moody's Investors Service (Moody's) changed Laredo Petroleum, Inc.'s (Laredo) rating outlook to stable from positive and downgraded the company's senior unsecured notes rating to B3 from B2. Concurrently, Moody's affirmed Laredo's B1 Corporate Family Rating (CFR) and B1-PD Probability of Default Rating (PDR). The Speculative Grade Liquidity Rating remains SGL-2.

"Laredo's business strategy is in transition as the company strives to boost oil production in order to improve margins and returns over time," commented Amol Joshi, Moody's Vice President and Senior Credit Officer. "Laredo's credit profile benefits from moderate leverage pro forma for the announced $130 million acreage acquisition, while its sizeable but less oily legacy asset base has endured lower margins and cash flow even with a competitive cost structure."

Downgrades:

..Issuer: Laredo Petroleum, Inc.

....Senior Unsecured Notes, Downgraded to B3 (LGD5) from B2 (LGD5)

Outlook Actions:

..Issuer: Laredo Petroleum, Inc.

....Outlook, Changed To Stable From Positive

Affirmations:

..Issuer: Laredo Petroleum, Inc.

.... Probability of Default Rating, Affirmed B1-PD

.... Corporate Family Rating, Affirmed B1

RATINGS RATIONALE

The change of Laredo's rating outlook to stable reflects Moody's expectation that the company should maintain sound financial metrics while managing its capital program and liquidity prudently, as the company begins executing its strategy to improve margins and returns.

Following Laredo's acreage acquisition announcement, Moody's expects the company to focus its 2020 drilling on the new oily acreage and significantly reduce drilling activity on its legacy acreage. This should gradually increase oil content in the company's production mix and improve margins, if capital and operating costs remain under control.

The B1 CFR is supported by the company's production and reserves base in the Permian's prolific Midland Basin, a sizeable, repeatable drilling inventory providing organic growth potential, high degree of operational control along with retained gathering assets within its production corridors and track record of hedging production. Laredo's leverage metrics are healthy reflecting the company's moderate leverage, allowing some flexibility to execute its changing strategic goals. However, Laredo's credit profile remains constrained by its relatively small scale and geographically concentrated upstream operations, low proportion of crude oil in its existing production and the significant capital expenditures required to develop its acreage.

Moody's downgraded Laredo's senior unsecured notes to B3 from B2. Laredo's notes are rated two notches below the B1 CFR, reflecting the priority claim of the relatively large borrowing base senior secured credit facility that has a first lien on most of Laredo's assets.

Laredo's SGL-2 Speculative Grade Liquidity Rating reflects its good liquidity profile. At September 30, 2019, the company had $32 million of cash, and $185 million outstanding under its credit facility. In October 2019, Laredo's borrowing base was reduced to $1 billion from $1.1 billion. In November, Laredo announced a $130 million acreage acquisition likely to be funded with additional revolver borrowings. The company will likely limit cash flow outspend in 2020 if commodity prices remain weak, while existing 2020 hedges should be supportive. Availability under its revolver should cover funding shortfalls through 2020. Financial covenants under Laredo's credit facility include a maximum Consolidated Net Leverage Ratio of 4.25x and a current ratio of at least 1x. Moody's expects the company to have ample headroom under its covenants through 2020 based on projected spending and debt levels. Laredo's nearest notes maturity is January 2022. While Laredo's revolver maturity is April 2023, it has a springing maturity implying that the revolver will mature 90-days prior to the January 2022 notes maturity if the notes are not refinanced by then.

The ratings could be upgraded if Laredo grows its production scale and oil content while achieving cash flow neutrality, with retained cash flow (RCF) to debt ratio maintained above 40% and leveraged full cycle ratio (LFCR) exceeding 1.5x. Moody's could consider a downgrade if the RCF/debt ratio falls towards 20% or the company's capital productivity declines significantly.

Laredo Petroleum, Inc. is a Tulsa, Oklahoma based independent exploration and production company with primary assets in West Texas' Midland Basin.

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.

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.

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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.

Amol Joshi, CFA
VP - Sr Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​
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