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05 Apr 2011
Approximately $550 million of debt securities affected
New York, April 05, 2011 -- Moody's Investors Service rated Penn Virginia Corporation's (PVA)
new notes B2 (LGD 4, 66%). Simultaneously, Moody's
affirmed PVA's B1 Corporate Family Rating (CFR), its B1 Probability
of Default Rating (PDR), and the B2 rating on the existing senior
unsecured notes (although the LGD point estimate is changing to 66%
from 58%). It also upgraded the Speculative Grade Liquidity
Rating to SGL-2 from SGL-3. The outlook is changed
to negative from stable.
Proceeds from the offering will be used to fund the company's tender of
the existing $230 million senior secured convertible notes due
November 2012 plus general corporate purposes.
"The move to a negative outlook reflects PVA's weakened capital
productivity both on a standalone basis and relative to its peers,"
said Ken Austin, Moody's Vice President. "Although
the company is transitioning to more of a liquids focus to offset the
weaker margins for its natural gas production, this transition will
take time and we expect lower profit margin trends to continue through
2011 with the company outspending cashflow in the near-term in
order to fund this transition."
RATINGS RATIONALE
In terms of capital productivity, average daily production has remained
essentially flat in the last three years, increasing from an average
of 21.4 MBoe/Day in 2008 to 21.6 MBOE/Day in 2010,
and reserves have slightly increased from 153 MMBoe in 2008 to 157 MMBoe
in 2010 all while PVA has invested close to $1.3 billion
in capital expenditure, of which $448 million was spent in
2010 alone.
The company's expansion in recent years to strengthen its core asset
base while diversifying into new basins in East Texas, Midcontinent,
Haynesville Shale, and Eagle Ford Shale has come at a cost.
The company's 1-year F&D cost has increased from $13.53/Boe
in 2008 to current high level of $36.05/Boe all while margins
have been under pressure due to weakened natural gas pricing in North
America. As a result, PVA's full cycle leverage ratio
currently stands at 0.77x, indicating that current realized
margins are below reserve replacement cost. The company is now
concentrating on developing its liquid rich assets in order to strengthen
its margins. We expect PVA to be outspending cashflow for the next
12-18 months while completing its transition to higher liquids
production. PVA's divestiture in 2010 of its ownership interest
in Penn Virginia Resource Partners, L.P. (PVR),
a publicly traded MLP, has resulted in loss of significant dividend
cashflow which could have financially aided PVA's portfolio transition.
In looking at scale, PVA's reserves and production remain
on the lower end of the B1 peer group, and currently approximately
79% of the company's production is natural gas based,
which faces near-term margin pressures. While its scale
has not suffered, its lack of progress compared to the peer group
ranks PVA less favorably than it had been previously.
Despite lower margins PVA has maintained a conservative financial profile
and PVA's leverage remains in line with its peers. The rating
is also supported by experienced management and conservative financial
policies.
A move back to stable outlook would be considered if PVA manages to successfully
navigate its portfolio transition towards higher liquid production.
This would be evidenced by improving production and reserves trends coupled
with a much lower finding and development (F&D) cost that translates
into a leveraged full-cycle ratio of 1.00x (based on leading
edge F&D) or higher, while maintaining leverage profile in the
$8.00 boe of PD reserve range and debt/average daily production
around the $25,000/boe level.
Conversely, the ratings could be pressured if PVA's production
and reserve profile do not improve and PVA continues to lag behind its
peers, or if its leverage profile deteriorates.
The upgrade of the SGL rating to SGL-2 reflects PVA's improved
liquidity position underpinned by an undrawn $300 million revolving
credit facility, significant cash balances to help fund the expected
outspending of cash flow in 2011, and the covenant cushion that
will ensure accessibility to the revolver over the next four quarters.
The SGL-2 is also supported by the excess borrowing base value
of the assets versus the current $300 million revolver commitments.
The last rating action for Penn Virginia was on June 4, 2009 when
a first time B1 CFR, B1 PDR, B2 senior unsecured notes rating
and SGL-3 Speculative Grade Liquidity Rating was assigned.
The outlook was stable.
The principal methodologies used in this rating were Independent Exploration
and Production (E&P) Industry 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.
Penn Virginia Corporation, headquartered in Radnor, Pennsylvania,
is an independent oil and gas company primarily engaged in the development,
exploration, and production of natural gas and oil in the East Texas,
the Mid-Continent, Appalachian and Mississippi regions.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information, and
confidential and proprietary Moody's Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
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
and accurate data may not be available. Consequently, Moody's
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
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Kenneth Austin
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Steven Wood
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's changes Penn Virginia's outlook to negative from stable
No Related Data.
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