New York, March 20, 2020 -- Moody's Investors Service ("Moody's") downgraded Callon Petroleum Company's
(Callon) Corporate Family Rating (CFR) to B3 from B1, Probability
of Default Rating (PDR) to B3-PD from B1-PD and the ratings
on its senior unsecured notes to Caa1 from B2. The Speculative
Grade Liquidity (SGL) rating was downgraded to SGL-3 from SGL-2.
The outlook has been revised to negative from stable.
"The downgrade of Callon Petroleum's ratings reflects the
decline in commodity prices and the impact it will have on the company's
cash flows and liquidity," stated James Wilkins, Moody's
Vice President.
Downgrades:
..Issuer: Callon Petroleum Company
.... Probability of Default Rating,
Downgraded to B3-PD from B1-PD
.... Speculative Grade Liquidity Rating,
Downgraded to SGL-3 from SGL-2
.... Corporate Family Rating, Downgraded
to B3 from B1
....Senior Unsecured Regular Bond/Debentures,
Downgraded to Caa1 (LGD5) from B2 (LGD5)
Outlook Actions:
..Issuer: Callon Petroleum Company
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The E&P sector has
been one of the sectors most significantly affected by the shock given
its sensitivity to demand and oil prices. We regard the coronavirus
outbreak as a social risk under our ESG framework, given the substantial
implications for public health and safety. Today's action
reflects the impact on Callon's credit quality of the breadth and
severity of the oil demand and supply shocks, and the broad deterioration
in credit quality it has triggered.
Callon's decision to lower its capital expenditures in 2020 by 25%
to $700-$725 million that the company anticipates
will keep production flat at $35 per bbl WTI oil and $2.00
per MMBtu natural gas prices and hedges will help protect its cash flow
generation in 2020.
Callon's SGL-3 rating reflects its current adequate liquidity,
supported by cash flow from operations, modest cash balances,
as well as Callon's revolving credit facility. The revolver had
a $2.5 billion borrowing base, $2 billion of
commitments and $1.3 billion of borrowings as of year-end
2019, leaving $700 million available on the revolver.
Moody's expects the availability will be reduced after the spring
2020 borrowing base redetermination, reflecting the current lower
commodity price environment, and may cut the amount of unused availability
sharply. The revolver has two financial covenants - a minimum
current ratio of 1x and a maximum leverage ratio of 4x - with which
the company may have little headroom in 2021 if low commodity prices persist.
Callon has no upcoming debt maturities until 2023.
Callon's B3 CFR reflects its scale and recent track record of growing
production and reserves. Following the Carrizo acquisition,
Callon has larger and more diversified operations focused on two shale
plays in the Permian Basin and the Eagle Ford Basin. The Permian
Basin acreage is in the early stages of development and will require significant
capital to develop, while the acquired Eagle Ford assets,
which are also predominately oil producing assets, are more mature
assets. The company's margins have benefitted from its competitive
unit costs as well as the high proportion of oil in its production volumes.
The negative outlook reflects the low and volatile commodity price environment
and uncertainty over the amount of available borrowing capacity Callon
will maintain under its revolver. The ratings could be downgraded
if liquidity weakens, RCF/debt falls below 20% or capital
efficiency weakens significantly. The ratings could be upgraded
in a more supportive oil and gas price environment if Callon maintains
adequate liquidity, successfully integrates the acquired Carrizo
assets, realizes synergies from the merger and maintains RCF/debt
above 25%.
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.
Callon Petroleum Company, headquartered in Houston, TX is
an independent exploration and production company with operations in the
Permian Basin and the Eagle Ford Shale in Texas.
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.
James Wilkins
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