Approximately C$32 million of rated debt affected
Toronto, May 08, 2018 -- Moody's Investors Service (Moody's) downgraded Perpetual Energy Inc.'s
(Perpetual) Corporate Family Rating to Caa2 from Caa1, Probability
of Default Rating to Caa2-PD from Caa1-PD, senior
unsecured notes rating to Caa3 from Caa2, and the Speculative Grade
Liquidity Rating to SGL-4(weak) from SGL-3 (adequate).
The outlook was changed to negative from stable.
"The downgrade reflects Perpetual's significant debt maturities
in 2019, including the company's revolver, with no cash
sources to repay the current debt", said Paresh Chari,
Moody's VP-Analyst. "Perpetual will need to
sell assets in order to repay its debt maturities."
Downgrades:
..Issuer: Perpetual Energy Inc.
.... Probability of Default Rating,
Downgraded to Caa2-PD from Caa1-PD
.... Corporate Family Rating, Downgraded
to Caa2 from Caa1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Caa3 (LGD 5) from Caa2 (LGD 5)
.... Speculative Grade Liquidity Rating,
Downgraded to SGL-4 from SGL-3
Outlook Actions:
..Issuer: Perpetual Energy Inc.
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
Perpetual's CFR is challenged by the current maturity of its revolver
in May 2019 leading to weak liquidity conditions, no cash source
to repay the C$15 million of senior notes due July 2019,
and small size in terms of production (11,000 boe/d net of royalties)
and reserves (12 million boe, proved developed), though the
company did grow its production from about 8,000 boe/d in Q1 2017.
Perpetual's CFR is supported by retained cash flow to debt of about
20% and EBITDA to interest at about 3.5x in 2019.
Perpetual's liquidity is weak (SGL-4). Through July
2019, we expect it will have $40 million of liquidity sources
compared to about $80 million of uses. Perpetual's
sole liquidity source is shares in publicly-traded Tourmaline Oil
Corp. (unrated), while liquidity uses consist of 1) a C$16
million secured margin loan against the Tourmaline shares, due July
2018, C$50 million in outstandings on its C$60 million
revolver, due May 2019, and C$15 million of Senior
Notes due July 2019. We expect Perpetual will be breakeven free
cash flow through Q1 2019. The company has a limited ability to
sell other assets to generate additional liquidity. There are no
financial covenants. While it is possible that the banks will be
prepared to extend the revolver, there is no certainty this will
occur.
In accordance with Moody's Loss Given Default (LGD) Methodology,
the C$32 million senior unsecured notes are rated Caa3, one
notch below the CFR, due to the amount of priority ranking debt
of the C$60 million secured borrowing base revolver and C$45
million secured term loan.
The negative outlook reflects that Perpetual will not be able repay its
May and July 2019 debt maturities.
The ratings could be upgraded if liquidity becomes adequate with the extension
of its revolver well beyond 12 months, and there is enough availability
to fund the next 12 to 15 months of cash uses.
The ratings could be downgraded if the company does not find cash sources
to repay its debt maturities in 2019.
Perpetual is a public Calgary, Alberta-based independent
exploration and production company with average daily production in Q1
2018 of about 11,000 boe/d, of which about 86% is natural
gas. The company operates exclusively in Alberta.
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 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
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.
Paresh Chari
VP - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653