$1.1 billion of debt affected
New York, May 21, 2020 -- Moody's Investors Service, (Moody's) downgraded Extraction Oil and
Gas, Inc.'s (Extraction) Corporate Family Rating (CFR) to
Ca from Caa2 and Probability of Default Rating (PDR) to C-PD from
Caa2-PD. The ratings on the unsecured notes were downgraded
to C from Caa3. The outlook remains negative.
The downgrade follows Extraction's election to skip its May 15 interest
payment on its 2024 senior unsecured notes as the company evaluates strategic
options to restructure its capital structure and bolster its liquidity,"
said John Thieroff, Moody's senior analyst. If the
company fails to cure the missed interest payment within the 30-day
grace period, it will be in default.
Downgrades:
..Issuer: Extraction Oil and Gas, Inc.
.... Probability of Default Rating,
Downgraded to C-PD from Caa2-PD
.... Corporate Family Rating, Downgraded
to Ca from Caa2
....Senior Unsecured Regular Bond/Debenture,
Downgraded to C (LGD5) from Caa3 (LGD5)
Outlook Actions:
..Issuer: Extraction Oil and Gas, Inc.
....Outlook, Remains Negative
RATINGS RATIONALE
Extraction's Ca CFR and C-PD PDR reflect its elevated default risk
due to a voluntary non-payment of interest on May 15, 2020,
uncertainty around the company's ability to continue as a going
concern, weak liquidity and potential for a financial covenant violation,
and Moody's views on recovery. If the company does not make the
$14.8 million interest payment on its senior unsecured notes
due 2024 within the 30-day grace period, it will be an event
of default under the notes indenture. The borrowing base under
Extraction's revolving credit facility was reduced to $650
million from $950 million during the April redetermination and
the company opted to draw the remaining $80 million available under
the revolver to preserve liquidity in light of a potential financial covenant
breach at the end of the second quarter. Inclusive of the revolver
drawdown, Extraction had $94 million of cash on its balance
sheet as of May 7, 2020. Extraction's decision to cut its
2020 capital budget by about 40% from its initial guidance (and
about 60% from 2019 levels) will likely lead to a substantial drop
in production, given the steep initial decline rates of its shale
assets. The rating is further constrained by the company's single
basin focus and ongoing regulatory uncertainty in Colorado. Extraction
benefits from its large inventory of drilling locations with favorable
economics, ownership of Elevation Midstream, LLC (Elevation)
and a strong hedge position that provides meaningful cash flow protection
in 2020.
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 Extraction's credit profile have left it vulnerable
to shifts in market sentiment in these unprecedented operating conditions
and Extraction remains vulnerable to the outbreak continuing to spread
and oil 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 Extraction of the breadth and severity of the oil demand
and supply shocks, and the broad deterioration in credit quality
it has triggered.
Extraction's debt is comprised of $400 million of senior unsecured
notes due 2024, $700 million of senior unsecured notes due
2026 and the secured revolving credit facility due August 2022.
The unsecured notes, which are contractually subordinated to the
secured revolver debt, are rated C, one notch below the Ca
CFR, in line with Moody's view of recovery. The notes and
revolver are guaranteed by Extraction's existing and future subsidiaries.
The negative outlook reflects the very high potential for a default.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ratings could be downgraded if the company doesn't cure its missed
interest payment within the 30-day grace period or initiates a
restructuringor if Moody's views on overall recovery are reduced.
Although unlikely in the near term, an upgrade would be considered
if Extraction substantially bolsters its liquidity, resolves potential
covenant issues, reduces debt and satisfactorily resolves its 2021
preferred stock redemption.
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.
Extraction Oil and Gas, Inc., headquartered in Denver,
Colorado, is a public oil and gas exploration and production (E&P)
company with approximately 159,000 net acres in its focus area of
the Denver-Julesburg (DJ) Basin and a total of approximately 289,000
net acres.
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.
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
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