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Rating Action:

Moody's rates Baytex's proposed notes Ba3; outlook positive

Global Credit Research - 23 May 2014

Approximately $780 million of debt rated

Toronto, May 23, 2014 -- Moody's Investors Service (Moody's) assigned a Ba3 rating to Baytex Energy Corp.'s (Baytex) proposed US$780 million senior unsecured notes. Baytex's existing senior unsecured notes were affirmed at B1, but will be upgraded to Ba3 once the Aurora acquisition closes. The rating outlook was changed to positive from developing. Baytex's Corporate Family Rating of Ba3 and Probability of Default Rating of Ba3-PD were affirmed. The Speculative Grade Liquidity Rating of SGL-3 was affirmed.

Proceeds from the notes will be used to fund the tender offer for Aurora Oil & Gas USA Limited's (Aurora) US$665 million senior unsecured notes.

The new notes will be held in escrow until closing of the acquisition, and on closing, the bank credit facilities (unrated) will become unsecured and rank equally with the existing notes and new notes. The credit facilities and notes will be supported with downstream and upstream guarantees of most operating companies. The ratings are subject to final documentation and the closing of the Aurora acquisition.

"The change in outlook to positive from developing reflects an improved capital structure and enhanced liquidity, and our expectation that Baytex will sell assets using the proceeds to reduce debt," said Paresh Chari, Moody's Analyst. "Leverage will improve with debt reduction and production growth from its increased and diversified production base."

Assignments:

..Issuer: Baytex Energy Corp.

....Senior Unsecured Regular Bond/Debenture, Assigned Ba3

....Senior Unsecured Regular Bond/Debenture, Assigned a range of LGD4, 51 %

Outlook Actions:

..Issuer: Baytex Energy Corp.

....Outlook, Changed To Positive From Developing

Affirmations:

..Issuer: Baytex Energy Corp.

.... Probability of Default Rating, Affirmed Ba3-PD

.... Speculative Grade Liquidity Rating, Affirmed SGL-3

.... Corporate Family Rating, Affirmed Ba3

....Multiple Seniority Shelf, Affirmed (P)B1

....Senior Unsecured Regular Bond/Debenture Jul 19, 2022, Affirmed B1

....Senior Unsecured Regular Bond/Debenture Feb 17, 2021, Affirmed B1

RATINGS RATIONALE

Pro forma for the Aurora acquisition, Baytex's Ba3 Corporate Family Rating (CFR) reflects its significant reserves and production base, oily product mix (85% liquids), geographic diversity, and solid cash margins and leveraged full cycle ratio (LFCR). The rating also considers the high dividend payment compared to cash flow which drives a weak retained cash flow to debt metric, and weak leverage in terms of E&P debt to production and E&P debt to proved developed reserves.

Baytex will have adequate liquidity (SGL-3) at closing, expected in June 2014, through mid-2015. Although Baytex will have no cash at closing, it will have $500 million available under $1.4 billion of increased bank revolver and term facilities, against Moody's expectation of about $100 million of negative free cash flow after capital expenditures and dividends. Baytex has no debt maturities in the next year, and Moody's expects covenant headroom to be adequate. Baytex will also gain liquidity from likely asset dispositions.

The positive outlook reflects Moody's view that Baytex may exhibit the characteristics of a Ba2 rating if it sells assets to reduce debt, and can successfully integrate Aurora and demonstrate production and reserves growth.

The rating could be upgraded if Baytex closes the Aurora acquisition and production exceeds 70,000 boe/d, while maintaining retained cash flow to debt above 40% and E&P debt to production below US$25,000/boe.

The rating could be downgraded if E&P debt to production appeared likely to rise above US$40,000/boe or if retained cash flow to debt appeared likely to fall below 20%.

The principal methodology used in this rating was the 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.

Baytex is a Calgary, Alberta-based exploration and production company that has pro-forma proved reserves of approximately 250 million barrels of oil equivalent and net of royalties average daily production of approximately 70,000 boe/d of which 85% is oil.

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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Moody's has not provided advisory services but may have provided Ancillary or Other Permissible Service(s) to the rated entity, its related third parties and/or the party that requested the rating within the past two years (including during the most recently ended fiscal year). Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's credit rating agency in Canada" on the ratings disclosure page www.moodys.com/disclosures on our website for further information.

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.

Paresh Chari
Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
(416) 214-1635

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's rates Baytex's proposed notes Ba3; outlook positive
No Related Data.
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