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Rating Action:

Moody's downgrades Samson CFR to B3; reviews ratings for downgrade

12 Dec 2014

$3.25 billion of rated debt affected

New York, December 12, 2014 -- Moody's Investors Service (Moody's) downgraded Samson Investment Company's (Samson) Corporate Family Rating (CFR) to B3 from B1, its second-lien term loan rating to B2 from B1 and its senior unsecured notes rating to Caa1 from B3. Ratings were placed under review for downgrade. Moody's also assigned a SGL-4 Speculative Grade Liquidity Rating.

"The ratings downgrade and review for downgrade reflect weakness in margins, cash flow and asset value, which have contributed to increased leverage, and have pressured Samson's liquidity," commented Andrew Brooks, Moody's Vice President. "While Samson appears to have options with which to augment its liquidity, debt leverage is likely to remain unduly elevated until uncertainty in the current commodity price down-cycle is resolved. Samson's efforts to meaningfully high-grade its producing portfolio thereby generating improved margins and cash flow, which it has been attempting to achieve through select asset divestitures and acquisitions, is likely to confront further obstacles in the current market environment."

Ratings downgraded:

Downgrades:

..Issuer: Samson Investment Company

.... Probability of Default Rating, Downgraded to B3-PD from B1-PD; Placed Under Review for further Downgrade

.... Corporate Family Rating (Local Currency), Downgraded to B3 from B1; Placed Under Review for further Downgrade

....Senior Secured Bank Credit Facility (Local Currency) Sep 10, 2018, Downgraded to B2(LGD3) from B1(LGD3); Placed Under Review for further Downgrade

....Senior Unsecured Regular Bond/Debenture (Local Currency) Feb 15, 2020, Downgraded to Caa1(LGD5) from B3(LGD5); Placed Under Review for further Downgrade

Assignments:

....Speculative Grade Liquidity Rating, Assigned at SGL-4

Outlook Actions:

..Issuer: Samson Investment Company

....Outlook, Changed to Rating Under Review from Stable

RATINGS RATIONALE

Samson's B3 CFR reflects its standing as a large, predominately natural gas producer, with third-quarter 2014 output averaging 88 thousand barrels of oil equivalent (Boe) per day (70% natural gas, 16% crude oil, 14% natural gas liquids) and significant acreage and drilling inventory, highlighting the extent of geological diversification characterizing its asset portfolio. However, Samson has become increasingly more highly leveraged as a result of funding cash flow deficits while attempting to high-grade its producing portfolio in an effort to generate improved margins and cash flow. Third-quarter debt to production has increased to an approximate $43,000 per Boe, and is likely to deteriorate further on expected production declines. Chronically low natural gas prices exacerbated by suddenly weaker crude oil prices have pressured near term cash flow, stressing the company's liquidity and limiting opportunities for debt reduction. While Samson has made progress furthering the development of its oil and liquids-rich natural gas acreage, this strategy has not generated cash flow sufficient to adequately fund its ongoing oil and gas development and production activities, requiring the company to shift its focus to asset sales to supplement its liquidity.

The review for downgrade will focus on Samson's plans and ability to incorporate improved liquidity into the operations of the company, and address the excessive financial leverage and interest expense under which the company is burdened. Additionally pressured by reduced oil and gas commodity prices, Moody's will review Samson's ability to transition into a high-graded asset portfolio and solidified capital structure. Moody's expects to resolve its review in 2015's first quarter.

Samson's SGL-4 Speculative Grade Liquidity Rating reflects its weak liquidity through 2015. With $567 million drawn under its $1.0 billion secured borrowing base revolving credit facility at September 30, the remaining undrawn portion could be required in its entirety to fund 2015's expected cash flow deficit, which has been pressured by weak oil and gas commodity prices. The revolver has a scheduled maturity date of December 2016. Availability of the unused amount of the revolver could become restricted in 2015 should Samson be unable to comply with the facility's 1.5x first lien debt to EBITDA covenant (through December 31, 2015, after which it reverts to 4.5x consolidated debt to EBITDA), adding to the urgency of asset sales to manage down revolving credit outstandings. In May 2014, Samson's revolving credit agreement was also amended to reduce its borrowing base to $1.0 billion from $1.78 billion, while permitting it to incur an additional $500 million of second lien debt without a further, related reduction to the borrowing base. While the amendment at the time somewhat rebuilt available liquidity, it is Samson's intention to use the additional second lien capacity to give it flexibility in the funding of acquisitions, should they materialize in the process of high-grading its asset portfolio.

Further pressuring cash flow is the relatively modest amount of hedging Samson has incorporated into its 2015 expected production; approximately 25% of crude oil and 55% of natural gas volumes. The company is also burdened with exceptionally heavy debt service costs relative to cash flow as a result of its high coupon debt, as evidenced by weak interest coverage of 1.5x at September 30.

The Caa1 rating on Samson's $2.25 billion senior unsecured notes reflects the subordination of the senior unsecured notes to Samson's $1.0 billion senior secured revolving credit and its $1.0 billion second lien term loan's priority claim to the company's assets. The size of the claims relative to Samson's outstanding senior unsecured notes results in the notes being rated one notch below the B3 CFR under Moody's Loss Given Default Methodology. The B2 rating on Samson's $1.0 billion second lien term loan reflects its superior position in the capital structure compared to the unsecured notes and its second priority lien on all collateral securing the secured revolving credit.

The review for downgrade reflects Samson's weakened liquidity position and the challenges it faces to reinforce its liquidity through asset sales in a weak oil and gas pricing environment, recognizing that asset sales alone will likely not adequately address the company's elevated debt leverage. Ratings could be downgraded should Samson's liquidity continue to deteriorate, should EBITDA coverage of interest approach 1.0x or should retained cash flow (RCF) to debt not be restored to over 10%. Absence of a viable operating and financial plan to permanently restore credit measures to these levels could also result in a downgrade. Ratings could be upgraded presuming Samson's debt on production falls below $40,000 per Boe and its leveraged full-cycle ratio exceeds 1.0x.

The principal methodology used in these ratings was Global Independent Exploration and Production Industry published in December 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Samson Investment Company is the principal operating subsidiary of Samson Resources Corporation, a privately owned independent exploration and production company headquartered in Tulsa, Oklahoma. Samson was acquired in December 2011 by a Kohlberg Kravis Roberts & Co. L.P. (KKR)-led investor group for $7.2 billion in which KKR holds a 55% stake.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Andrew Brooks
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades Samson CFR to B3; reviews ratings for downgrade
No Related Data.
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