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Rating Action:

Moody's downgrades EQT to Ba1; outlook remains negative

13 Jan 2020

Approximately $5 billion of rated debt affected

New York, January 13, 2020 -- Moody's Investors Service, ("Moody's") downgraded EQT Corporation's (EQT) senior unsecured rating to Ba1 from Baa3. Moody's also assigned a Ba1 Corporate Family Rating (CFR), a Ba1-PD Probability of Default Rating (PDR) and an SGL-2 Speculative Grade Liquidity (SGL) Rating. The rating outlook is negative.

"EQT's significantly weakening cash flow metrics in light of the persistent weak natural gas price environment and the company's intent to refinance its 2020 maturities in lieu of debt reduction through repayment drives the ratings downgrade." commented Sreedhar Kona, Moody's senior analyst. "Although the company is pursuing several avenues to reduce debt and enhance its cash flow, the execution risk involved in those initiatives is reflected in the negative outlook."

Downgrades:

..Issuer: EQT Corporation

....Senior Unsecured Shelf, Downgraded to (P)Ba1 from (P)Baa3

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Ba1 from (P)Baa3

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba1 (LGD4) from Baa3

Assignments:

..Issuer: EQT Corporation

.... Corporate Family Rating, Assigned Ba1

.... Probability of Default Rating, Assigned Ba1-PD

.... Speculative Grade Liquidity Rating, Assigned SGL-2

.... Senior Unsecured Regular Bond/Debenture, Assigned Ba1 (LGD4)

Outlook Actions:

..Issuer: EQT Corporation

....Outlook, Remains Negative

RATINGS RATIONALE

EQT's downgrade to Ba1 from Baa3 is driven by the unlikely prospect of improvement in cash flow metrics to a level required to support an investment grade credit profile. Persistent weakness associated with the macro fundamentals of the natural gas sector and the volatility associated with the cash flow of pure-play natural gas producers necessitate a higher retained cash flow to debt ratio threshold than EQT can deliver over the medium term even with significant debt reduction. Additionally, EQT's cash flow metrics compare poorly to other Baa3 rated oil producing companies, despite EQT's size and scale.

EQT's Ba1 CFR reflects the likelihood of weakening cash flow metrics beyond 2020 in light of high debt levels and a persistently weak natural gas price environment. Although the company is supported by a strong hedge book for 2020, it is substantially exposed to weaker pricing in 2021 and beyond. In addition to reducing debt through asset sales, the company plans to improve its cash margins through several initiatives including cost structure optimization and renegotiation of midstream contracts with its midstream partner EQM Midstream, LP (Ba1 stable). While there is a level of execution risk in completing such transactions, the prospect of debt reduction and cash flow enhancement gives the company better ability to demonstrate metrics commensurate with a Ba1 CFR. In Moody's base case assuming cash margin improvement and debt reduction, we estimate EQT's retained cash flow to debt ratio to be in the 25-30% range in 2021 and beyond, but if the prevailing natural gas price weakness persists this ratio could be substantially weaker.

EQT is supported by its size and scale, high quality acreage position and modest cost structure that allows it to efficiently replace production and reserves in a weak natural gas price environment. EQT's 2020 capital budget indicates a more constrained approach to reserves and production growth and enables the company to generate free cash flow that could be applied towards debt reduction.

EQT's senior unsecured notes are rated Ba1, the same as the company's CFR, because all of the company's long-term debt, which includes $1 billion term loan (unrated) and $2.5 billion revolving credit facility (unrated), is unsecured.

Moody's expects EQT to have good liquidity consistent with an SGL-2 Speculative Grade Liquidity (SGL) Rating. As of September 30, 2019, EQT had $7.5 million of cash balance and less than $200 million of outstanding borrowings under the revolving credit facility maturing in 2022. However, the company's Ba1 rating could trigger a requirement for the company to post letters of credit to the company's counterparties. The company has stated publicly that this requirement could be up to $1.6 billion if there are two or more sub investment grade ratings. We expect the company to fund its capital spending needs and debt service from its operating cash flow through 2021. As of December 31,2019, EQT had $1 billion of term loan and $750 million of unsecured notes maturing in 2021, unless this indebtedness is fully or partially refinanced or repaid. Even if the company is unable to execute on the asset sales, it will have the ability to repay a significant portion of the 2021 maturities from the cash flow generated through operations and revolver borrowings. EQT's credit facility and the term loan agreements contain a debt to capital limitation of 65%. The company will remain in compliance with the covenant. EQT also has substantial natural gas reserves and acreage which could be sold or borrowed against to provide additional liquidity if necessary.

EQT's negative ratings outlook reflects the significant uncertainty in the natural gas price environment and the execution risk it poses for the company's debt reduction measures. The rating outlook could be changed to stable if the company executes on its business plan including significant debt reduction to improve its unhedged credit metrics.

EQT's ratings could be downgraded if the company fails to meaningfully reduce debt and demonstrate that it can sustain Ba1 credit metrics in a prolonged weak natural gas price environment. Specifically, the ratings will be downgraded if RCF/debt falls below 25% or if there is significant increase in debt to fund shareholder friendly actions.

EQT's ratings could be upgraded if the Retained Cash Flow (RCF) to debt ratio is sustained above 40% and the leveraged full cycle ratio (LFCR) is greater than 2x.

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.

EQT Corporation is an independent exploration and production (E&P) company focused in the Appalachian Basin.

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.

Sreedhar Kona
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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