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By clicking “I AGREE” [at the end of this document], you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s inform​ation that becomes accessible to you [after clicking “I AGREE”] (the “Information”).   References herein to “Moody’s” include Moody’s Corporation, Inc. and each of its subsidiaries and affiliates.

 

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2.            You acknowledge and agree that Moody’s credit ratings: (i) are current opinions of the future relative creditworthiness of securities and address no other risk; and (ii) are not statements of current or historical fact or recommendations to purchase, hold or sell particular securities.  Moody’s credit ratings and publications are not intended for retail investors, and it would be reckless and inappropriate for retail investors to use Moody’s credit ratings and publications when making an investment decision.  No warranty, express or implied, as the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any Moody’s credit rating is given or made by Moody’s in any form whatsoever.          

 

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Related Issuers
Rating Action:

Moody's downgrades EQT to Ba3; outlook remains negative

02 Apr 2020

Approximately $5 billion of rated debt affected

New York, April 02, 2020 -- Moody's Investors Service, ("Moody's") downgraded EQT Corporation's (EQT) Corporate Family Rating (CFR) to Ba3 from Ba1, its Probability of Default Rating (PDR) to Ba3-PD from Ba1-PD and its unsecured notes rating to Ba3 from Ba1. The Speculative Grade Liquidity (SGL) rating SGL-2 is unchanged. The rating outlook remains negative.

"The capital markets dislocation caused by the commodity price collapse in the first quarter of 2020 has acutely elevated the refinancing risk for oil and gas producers, and specifically for pure-play natural gas producers such as EQT with high refinancing needs in the near-term," commented Sreedhar Kona, Moody's senior analyst. "Furthermore, despite EQT's measures to improve its cash margin, the much-needed debt reduction to materially improve its cash flow metrics continues to be challenging as the outlook for natural gas fundamentals remains persistently weak."

Downgrades:

..Issuer: EQT Corporation

.... Probability of Default Rating, Downgraded to Ba3-PD from Ba1-PD

.... Corporate Family Rating, Downgraded to Ba3 from Ba1

....Senior Unsecured Notes, Downgraded to Ba3 (LGD4) from Ba1 (LGD4)

....Senior Unsecured Shelf, Downgraded to (P)Ba3 from (P)Ba1

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Ba3 from (P)Ba1

Outlook Actions:

..Issuer: EQT Corporation

....Outlook, Remains Negative

RATINGS RATIONALE

EQT's downgrade to Ba3 CFR from Ba1 is driven by its high refinancing risk in an unsupportive capital markets environment combined with challenging macro natural gas fundamentals without substantial commodity hedges in 2021. Despite EQT's cash margin improvement measures such as operational enhancements, gathering contract renegotiation with its midstream partner EQM Midstream Partners, LP (EQM) and somewhat enhancing the company's 2021 commodity hedge profile, EQT's credit profile improvement hinges on significant debt reduction and further mitigating commodity price risk through hedges.

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 debt reduction initiatives and improves the outlook for its cash flow metrics.

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. More specifically, the weaknesses in EQT's credit profile have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and EQT remains vulnerable to the outbreak continuing to spread and commodity prices remaining weak. 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 EQT of the breadth and severity of the commodity demand and supply shocks, and the broad deterioration in credit quality it has triggered.

Moody's expects EQT to have good liquidity consistent with its SGL-2 Speculative Grade Liquidity (SGL) Rating. As of December 31, 2019, EQT had $4.5 million of cash and $294 million of outstanding borrowings under the revolving credit facility maturing in July 2022. However, in the first quarter of 2020, the company repaid all of its outstanding borrowings under its revolver. Also, per the company's disclosure towards the end of first quarter 2020, approximately $700 million of letters of credit were posted from the revolver, leaving the available balance at $1.8 billion[1]. We expect the company to fund its capital spending needs and debt service from its operating cash flow through 2020. Per the company's disclosure, EQT had $800 million of term loan and $250 million of unsecured notes due in 2021. 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 Ba3 CFR 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. However, EQT faces 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 pursuing debt reduction through asset sales, the company has already put in measures in place to improve its cash margins through several initiatives including operating cost structure optimization and the reduced gathering tariffs on its midstream contracts. 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 Ba3, the same as the company's CFR, because all of the company's long-term debt, which includes $1 billion term loan ($800 million outstanding, unrated) and $2.5 billion revolving credit facility (unrated), is unsecured.

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

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:

EQT's ratings could be downgraded if the company fails to meaningfully reduce debt or if the Retained Cash Flow (RCF) to debt ratio falls below 15%. The ratings could also be downgraded if the company is unable to refinance or repay its near-term maturities and engages in debt purchases at steep discount or layers secured debt above the unsecured notes.

EQT's ratings could be upgraded if RCF/debt is sustained above 25% and the leveraged full cycle ratio (LFCR) is greater than 1.5x.

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.

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 outcome 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] Investor Presentation March 23, 2020 23-Mar-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.

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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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