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Related Issuers
Rating Action:

Moody's downgrades Laredo's notes to Caa1; outlook stable

30 Sep 2020

New York, September 30, 2020 -- Moody's Investors Service (Moody's) downgraded Laredo Petroleum, Inc.'s (Laredo) corporate family rating (CFR) to B3 from B1, Probability of Default Rating (PDR) to B3-PD from B1-PD, senior unsecured notes rating to Caa1 from B3 and the Speculative Grade Liquidity (SGL) Rating to SGL-3 from SGL-2. The rating outlook is stable.

"Laredo's strategy is transforming its portfolio to focus on increasing oil production and margins over time," commented Amol Joshi, Moody's Vice President and Senior Credit Officer. "Laredo faces increased execution risk exacerbated by weak operating conditions and uncertainty about the pace of economic recovery, while its sizeable but less oily legacy asset base endures lower margins and cash flow even with a competitive cost structure."

Downgrades:

..Issuer: Laredo Petroleum, Inc.

.... 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/Debenture, Downgraded to Caa1 (LGD5) from B3 (LGD5)

Outlook Actions:

..Issuer: Laredo Petroleum, Inc.

....Outlook, Remains Stable

RATINGS RATIONALE

The downgrade of Laredo's CFR to B3 reflects Moody's view that the low commodity price environment should lead to weaker cash flow and leverage metrics along with a lower value of its less oily assets, even as Laredo's commodity hedges and lower capital spending temporarily boost cash flow based leverage metrics in 2020.

Laredo's credit profile is constrained by its moderate scale and geographically concentrated upstream operations, as well as low proportion of crude oil in its existing production that is reflected in lower capital efficiency compared to its more oily peers. Laredo's strategy is to focus drilling on its more oily acreage to raise the proportion of profitable production and to significantly reduce new drilling activity on its legacy acreage. This could gradually increase oil content in the company's production mix and improve margins and returns, if capital and operating costs remain under control. The strategy entails significant capital expenditures required to develop new acreage and grow production of oil.

Laredo's B3 CFR is supported by its production and reserve base in the Permian's prolific Midland Basin with a drilling inventory providing organic reserve development, high degree of operational control, relatively low operating costs along with retained gathering assets within its production corridors and management's track record of hedging oil and gas production.

Moody's downgraded Laredo's senior unsecured notes to Caa1 from B3. Laredo's notes are rated one notch below the B3 CFR, reflecting the priority claim of its borrowing base senior secured credit facility that has a first lien on most of Laredo's assets.

Laredo's SGL-3 Speculative Grade Liquidity Rating reflects its adequate liquidity. At June 30, the company had $16 million of cash and $275 million of borrowings with $44 million of letters of credit outstanding under its credit facility. During the April 2020 redetermination, Laredo's borrowing base was reduced to $725 million from $950 million. The company will likely limit cash flow outspend through 2021 if commodity prices remain weak. Availability under its revolver should cover modest anticipated funding shortfalls through 2021. The two financial covenants under Laredo's credit facility are a maximum Consolidated Net Leverage Ratio of 4.25x and a current ratio of at least 1x. Laredo's revolver matures in April 2023 and its nearest notes maturity is January 2025. Moody's expects the company to have sufficient headroom under its covenants through 2021 based on projected spending and debt levels.

Laredo's stable rating outlook is based on Moody's expectation that Laredo should maintain a competitive cost structure and manage its capital program and liquidity prudently.

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

The ratings could be upgraded in a more supportive commodity price environment if Laredo successfully executes its strategy of increasing oil production while keeping capital and operating costs under control and its leveraged full cycle ratio (LFCR) comfortably exceeds 1x. Moody's could consider a downgrade if the company's capital productivity materially declines or its liquidity significantly deteriorates.

Laredo Petroleum, Inc. is a Tulsa, Oklahoma based independent exploration and production company with primary assets in West Texas' Midland Basin.

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 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.

Amol Joshi, CFA
VP - Sr Credit Officer
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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​
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