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I AGREE
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
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affected the rating. For further information please see the ratings
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For any affected securities or rated entities receiving direct credit
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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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