$625 million of rated debt affected
New York, April 09, 2020 -- Moody's Investors Service ("Moody's") downgraded
W&T Offshore, Inc.'s (W&T) Corporate Family
Rating (CFR) to Caa2 from B3, Probability of Default Rating (PDR)
to Caa2-PD from B3-PD and senior secured second lien notes
rating to Caa3 from B3. W&T's Speculative Grade Liquidity
(SGL) Rating was downgraded to SGL-4 from SGL-2.
The outlook was changed to negative from stable.
"The downgrade of W&T's ratings reflects the negative
impact from the weak oil and gas price environment on credit quality,
increased refinancing risks as debt maturities approach and a high cost
of capital which elevates risks of restructuring and default,"
said Jonathan Teitel, Moody's Analyst.
Downgrades:
..Issuer: W&T Offshore, Inc.
.... Probability of Default Rating,
Downgraded to Caa2-PD from B3-PD
.... Speculative Grade Liquidity Rating,
Downgraded to SGL-4 from SGL-2
.... Corporate Family Rating, Downgraded
to Caa2 from B3
....Senior Secured Notes, Downgraded
to Caa3 (LGD4) from B3 (LGD4)
Outlook Actions:
..Issuer: W&T Offshore, Inc.
....Outlook, Changed To Negative From
Stable
RATINGS RATIONALE
The downgrade of W&T's ratings reflects negative effects from
weak commodity prices and challenging capital markets on the company,
particularly as debt maturities approach. There are rising risks
of restructuring and default, including a distressed exchange which
could be deemed a default by Moody's. The negative outlook
reflects increasing refinancing risks, rising risk of default and
further erosion of liquidity as debt maturities approach.
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 W&T's credit profile have left it vulnerable
to shifts in market sentiment in these unprecedented operating conditions
and W&T remains vulnerable to the outbreak continuing to spread and
oil prices remaining weak. Moody's regards 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 W&T of the breadth and severity of the oil
demand and supply shocks, and the broad deterioration in credit
quality it has triggered.
The SGL-4 rating reflects Moody's view that W&T's
liquidity is weak. The company's revolver expires in October
2022. W&T's revolver has a $250 million borrowing
base. Moody's estimates that the company's ability
to draw on its revolver could be constrained by financial covenants over
time. Reduction in the borrowing base during spring redetermination
is possible which would weaken liquidity. As of February 29,
2020, the company had $40 million of cash and $80
million drawn on its $250 million revolver ($6 million of
letters of credit were outstanding).
W&T's Caa2 CFR reflects refinancing risks and rising risk of
default, including a distressed exchange which could be deemed a
default by Moody's. The company has offshore concentration
and large well abandonment liabilities. The plugging and abandonment
liabilities signify higher underlying financial leverage and carry ongoing
cash expenditures. W&T benefits from low basis differentials,
and sometimes premiums notwithstanding weak commodity prices. W&T's
financial policies are among governance considerations. Acquisitions
are part of the company's growth strategy, and credit risks
could increase if there are further debt-funded purchases.
The company has a low capital budget for 2020 with expectations to spend
between $15-$25 million, significantly below
capital spending in 2019. While benefiting liquidity short-term,
significantly lower investment will negatively affect production and reserves
growth over time. The company has limited hedges beyond 2020.
Environmental considerations that exploration and production companies
such as W&T contend with are the effects of environmental regulations
on their operations, including those specific to offshore operators,
as well as limitations on where they can explore for new resources.
Governance considerations include concentrated equity ownership.
Tracy Krohn, W&T's chairman and CEO, owns roughly
one-third of the company.
W&T's $625 million of senior secured second lien notes
due November 2023 are rated Caa3, one notch below the CFR reflecting
that these notes have a second lien on the collateral relative to the
revolver.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to a downgrade include increasing default risk
including distressed exchanges, weakening liquidity or Moody's
view on expected recoveries is lowered.
Factors that could lead to an upgrade include refinanced debt with longer
tenors, less debt, sustainable production and reserves growth,
and adequate liquidity.
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.
W&T, headquartered in Houston, Texas, is a publicly-traded
independent exploration and production company operating offshore in the
US Gulf of Mexico. Average daily production for 2019 was 41 Mboe/d.
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.
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.
Jonathan Teitel, CFA
AVP-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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