NOTE: On July 09, 2020, the press release was corrected as follows: In the Affirmations section of the debt list, for issuer California Resources Corp., the LGD rate of the Senior Secured Revolving Credit Facility was changed to LGD1. Revised release follows.
New York, July 07, 2020 -- Moody's Investors Service, ("Moody's") downgraded
California Resources Corporation's (CRC) Corporate Family Rating
(CFR) to Ca from Caa3, ratings on its senior secured first lien
term loan due 2022 to Caa3 from Caa1 and ratings on its senior secured
first lien term loan due 2021 to Ca from Caa3. At the same time,
Moody's downgraded CRC's Probability of Default Rating (PDR)
to Ca-PD/LD from Caa3-PD and affirmed its senior secured
revolving credit facility rating at B2. There is no change to the
SGL-4 Speculative Grade Liquidity Rating. The rating outlook
is negative.
The downgrade of CRC's ratings reflects the high probability that
the company will restructure its debt in the very near term, as
well as Moody's view of recovery. The "LD" designation
appended to the PDR reflects the expiration of a grace period following
the company's decision to skip its May 29, 2020 interest payments.
Downgrades:
..Issuer: California Resources Corp.
.... Probability of Default Rating,
Downgraded to Ca-PD /LD from Caa3-PD
.... Corporate Family Rating, Downgraded
to Ca from Caa3
....Senior Secured Term Loan, Downgraded
to Ca (LGD4) from Caa3 (LGD4)
....Senior Secured Term Loan, Downgraded
to Caa3 (LGD3) from Caa1 (LGD2)
Affirmations:
..Issuer: California Resources Corp.
....Senior Secured Revolving Credit Facility,
Affirmed B2 (LGD1)
....Senior Secured Second Lien Notes,
Affirmed C (LGD5) from (LGD6)
....Senior Unsecured Notes, Affirmed
C (LGD6)
Outlook Actions:
..Issuer: California Resources Corp.
....Outlook, Remains Negative
RATINGS RATIONALE
CRC's Ca CFR reflects the company's high financial leverage, the
imminent risk of debt restructuring underscored by CRC's decision
to skip its interest payments due May 29, and Moody's view
of overall recovery. The company's capital structure is comprised
of (in order of decreasing priority of claim): the revolving credit
facility (rated B2), first lien term loan due 2022 (Caa3),
first lien term loan due 2021 (Ca), second lien notes due 2022 (C)
as well as senior unsecured notes (C). The ratings reflect the
priority of claim of the individual debt issues and Moody's expectation
of a very high recovery on the revolver and weak recovery for the unsecured
and second lien debt.
The rapid spread of the coronavirus outbreak, deteriorating global
economic outlook, low oil prices, and high asset price volatility
have created an unprecedented credit shock across a range of sectors and
regions. Moody's regards the coronavirus outbreak as a social risk
under its ESG framework, given the substantial implications for
public health and safety. Today's action reflects the impact on
CRC of the deterioration in credit quality it has triggered, given
CRC's exposure to oil demand and prices, which has left CRC vulnerable
to shifts in market demand and sentiment in these unprecedented operating
conditions.
The SGL-4 Speculative Grade Liquidity Rating reflects Moody's'
view that CRC has weak liquidity. Although CRC had available liquidity
at May 31, 2020 of $165 million, consisting of $148
million in unrestricted cash and $17 million of available borrowing
capacity under the company's revolving credit facility, this amount
was substantially impaired by a $150 million month-end minimum
liquidity requirement. Furthermore, the company's Forbearance
Agreement with its lenders prohibits it from borrowing under its revolver.
CRC stated in its first quarter 2020 10-Q filing that it believes
its operating cash flow and expected available credit capacity will not
be sufficient to meet its commitments over the next twelve months.[1]
The company has cut its capital spending to a level that maintains mechanical
integrity of its operations, to preserve liquidity. However,
this significantly reduced level of spending will not generate new production
to offset natural decline. As a result, Moody's expects CRC's
production to decline at least 10% through the first quarter of
2021 before giving effect to any potential shut-in production,
further constraining cash flow. In addition to its revolver,
which matures in June 2021, CRC has $2.4 billion of
debt maturities in 2021 (assuming the springing maturity on the term loan
due 2022 is activated) and $1.8 billion in 2022.
The negative outlook reflects the possibility that a low commodity price
environment and protracted restructuring process could further weaken
recovery values.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could be downgraded if asset values weaken further and Moody's
assessment of expected recovery worsens. Although unlikely in the
near term, an upgrade would be considered if CRC satisfactorily
addresses 2021 debt maturities and shores up its liquidity.
The principal methodology used in these ratings was Independent Exploration
and Production Industry published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
California Resources Corporation, headquartered in Santa Clarita,
California, operates exclusively in California and had annual production
of 128,000 barrels of oil equivalent (boe) per day in 2019.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
REFERENCES/CITATIONS
[1] Form 10-Q (SEC) 25-Jun-2020
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.
John Thieroff
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
