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Rating Action:

Moody's downgrades Antero Resources' CFR to Ba3, outlook negative

13 Dec 2019

Approximately $3.45 billion of rated debt affected

New York, December 13, 2019 -- Moody's Investors Service ("Moody's") downgraded Antero Resources Corporation's (Antero) Corporate Family Rating (CFR) to Ba3 from Ba2, Probability of Default Rating (PDR) to Ba3-PD from Ba2-PD, and senior unsecured notes to B1 from Ba3. The Speculative Grade Liquidity Rating was unchanged at SGL-3. The rating outlook was revised to negative. This concludes Moody's review of Antero's ratings that was initiated on October 21, 2019.

"The downgrade reflects Antero's elevated refinancing risks as well as the execution risks surrounding management's recently announced asset sales, debt reduction and cost savings plans," said Sajjad Alam, Moody's Senior Analyst. "Despite putting forward a concrete plan to comprehensively address its cost structure and balance sheet issues, there are risks that the continuation of poor natural gas prices, depressed asset valuations, and a challenged capital market environment could delay and potentially limit Antero's ability to close these transactions as planned."

Ratings Downgraded:

.Issuer: Antero Resources Corporation

...Corporate Family Rating, Downgraded to Ba3 from Ba2

...Probability of Default Rating, Downgraded to Ba3-PD from Ba2-PD

...Senior Unsecured Notes, Downgraded to B1 (LGD4) from Ba3 (LGD4)

.Issuer: Antero Resources Finance Corporation

...Senior Unsecured Notes, Downgraded to B1 (LGD4) from Ba3 (LGD4)

Ratings unchanged:

.Issuer: Antero Resources Corporation

...Speculative Grade Liquidity Rating, Remains unchanged at SGL-3

Outlook actions:

.Issuer: Antero Resources Corporation

...Outlook, Changed to Negative from Ratings Under Review

.Issuer: Antero Resources Finance Corporation

...Outlook, Changed to Negative from Ratings Under Review

RATINGS RATIONALE

Antero's Ba3 CFR reflects its elevated refinancing risk involving $2.6 billion of bond maturities through 2023, high financial leverage relative to unhedged cash flow and an unusually weak natural gas and natural gas liquids (NGL) price environment. The CFR also considers Antero's natural gas weighted asset portfolio, singular concentration in Appalachia, 100% unconventional resource focus, and significant proportion of proved undeveloped (PUD) reserves. Antero's ratings are supported by its strongly hedged position through 2021; significant production of NGLs, which improves overall price realizations; large and blocky acreage position in Appalachia that allow for highly efficient operations and lower costs; and its excellent optionality to sell gas and NGLs in price advantaged markets through a comprehensive portfolio of firm-transportation (FT) contracts. Antero also benefits from its significant ownership of Antero Midstream Corporation (AM), which is Antero's primary midstream partner for gathering, compression, fractionation and water transportation services, and had a $2.8 billion market capitalization as of December 12, 2019.

Antero has a history of aggressive volume growth and recurring negative free cash flow generation. However, management has undertaken several initiatives in 2019 to improve capital efficiency and manage its business within operating cash flow. While the company's latest cost reduction measures seem achievable, the contemplated asset sales and refinancing transactions will be dependent on market factors. If natural gas prices remain depressed or capital market conditions do not loosen for gas-focused E&P companies, Antero's balance sheet management efforts could get delayed.

Low natural gas and NGL prices have restrained Antero's ability to hedge, accelerate growth and delever the balance sheet. Additionally, the company continues to make significant deficiency payments for unutilized FT commitments, which management expects to eliminate by 2022 through 8%-10% annual production growth. The company could eliminate these payments sooner through potential fee concessions from pipeline counterparties. Antero has already announced $350 million of midstream cost reductions through 2023, approximately $240 million of which will come from AM, and is looking to sell up to $1 billion in assets by 2020 to address low prices and its near term maturities. Swift execution of the asset sale and refinancing transactions is needed to preserve the Ba3 rating.

Antero should have adequate liquidity through 2020, which is reflected in the SGL-3 rating. Moody's expects breakeven to slightly negative free cash flow in 2020 with minimal incremental draws on the revolving credit facility. Pro forma for the $215 million of debt repurchases and $100 million monetization of AM shares in fourth quarter 2019, Antero had $390 million of borrowings and $703 million in outstanding letters of credits leaving $1.55 billion of availability under its $2.64 billion committed revolving credit facility. The revolver has a $4.5 billion borrowing base which in redetermined annually, which is well above committed level. Antero's revolver will mature the earlier of: (i) October 26, 2022, and (ii) the date that is 91 days to the earliest stated redemption of any series of Antero's senior notes, unless such series of notes is refinanced. Consequently, Antero will need to repay or refinance the 2021 and 2022 note maturities to be able to extend the revolver maturity beyond 2022. The credit agreement requires that Antero maintain a minimum current ratio of 1x and a minimum interest coverage ratio of 2.5x, parameters that can be met comfortably. Given its sizeable land position in Appalachia and 27% remaining equity interest in the publicly traded Antero Midstream Partners LP, Antero has the ability to raise alternate liquidity, if needed.

Antero's senior notes are unsecured, have upstream guarantees from substantially all of Antero's E&P subsidiaries, and are contractually subordinated to the company's secured revolving credit facility. The notes are rated B1, one notch below the Ba3 CFR, because of the significant size of the secured credit facility, which has a first-lien priority claim to substantially all of Antero's assets.

The negative outlook reflects Antero's high execution and refinancing risks as well as weak natural gas industry fundamentals. Antero's ratings could be downgraded if the company is unable to execute its planned asset sales or substantially reduce its refinancing risks, generates significant negative free cash flow, or fails to maintain the ratio of retained cash flow to debt above 20%. A positive rating action would be contingent on Antero's ability to produce free cash flow on a consistent basis, eliminate refinancing risk and substantially reduce debt leading to a sustainable retained cash flow to debt ratio above 30%.

Antero Resources Corporation is a leading natural gas and natural gas liquids producer in the Marcellus and Utica Shales in West Virginia, Ohio and Pennsylvania.

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.

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.

Sajjad Alam
Vice President - Senior Analyst
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.
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