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Global Credit Research - 02 Feb 2011
$200 million of rated debt affected
New York, February 02, 2011 -- Moody's Investors Service assigned a Caa2 rating to GMX Resources Inc.'s
(GMX) proposed $200 million senior unsecured notes due 2019.
Moody's also assigned a first time Caa1 Corporate Family Rating (CFR)
and SGL-3 Speculative Grade Liquidity (SGL) rating to GMX.
Net proceeds from the notes offering and concurrent common equity offering
will be used to fund an offer to purchase $50 million of the company's
5% convertible senior notes, repay all outstanding revolver
debt, fund the $68.3 million cash portion of the purchase
price of its pending Bakken and Niobrara acquisitions, and fund
a portion of 2011 capital spending. The rating outlook is stable.
"GMX's Caa1 CFR reflects its small size, limited diversification,
production that is 97% natural gas in a low gas price environment,
high leverage on production and reserves, and the risks inherent
in developing its newly acquired oil focused Bakken and Niobrara acreage
while outspending cash flow," commented Jonathan Kalmanoff,
Moody's Analyst. "The rating also considers the potential
for improvement in both profitability and diversification if GMX is successful
in developing its newly acquired acreage, the pre-funding
of the majority of 2011 capital spending through both debt and equity
offerings, a lack of required drilling to hold acreage in the company's
East Texas properties, and hedges in place which add support to
realized prices for gas production through 2012."
At December 31, 2010, pro-forma, debt / average
daily production was $42,623/boe and debt / proven developed
reserves was $14.94/boe. In assessing leverage,
Moody's views 75% of GMX's 9.25% Series
B Cumulative Preferred Stock as debt.
The SGL-3 liquidity rating reflects adequate liquidity through
2011. At the closing of its debt and equity offerings, the
company will have $60 million of availability under its undrawn
borrowing base credit facility and $107 million of cash.
Capital expenditures are expected to exceed cash flow during 2011.
The credit facility, which is being amended concurrently with the
notes offering, has a $100 million commitment with an initial
borrowing base of $60 million. The borrowing base is re-determined
semi-annually with the next re-determination scheduled for
October 1, 2011. Financial covenants under the facility are
Senior Secured Debt / EBITDA of not more than 2.5x, EBITDA
/ interest of not less than 2.5x, and a current ratio of
not less than 1.0x. There are no debt maturities until 2013.
Substantially all of GMX's oil and gas reserves are pledged as security
under the credit facility which limits the extent to which asset sales
could provide a source of additional liquidity; however, the
company would be able to sell drilling rig and midstream assets held in
its subsidiaries to raise additional liquidity if needed.
The Caa2 senior unsecured note rating reflects both the overall probability
of default of GMX, to which Moody's assigns a PDR of Caa1,
and a loss given default of LGD4-58%. The size of
the senior secured revolver's potential priority claim relative to the
senior unsecured notes results in the notes being rated one notch beneath
the Caa1 CFR under Moody's Loss Given Default Methodology.
The stable outlook reflects our expectation that GMX will maintain adequate
liquidity as it outspends cash flow to develop its properties.
Negative ratings action could result if liquidity were to tighten due
to unexpected production declines relative to debt funded capital spending,
a reduction in availability under the company's borrowing base credit
facility, or reduced cash flow due to uneconomic realized prices
for natural gas production. Positive ratings action could result
if GMX were to meet its forecasts for production growth in the Bakken
and Niobrara leading to daily production over 15,000 boe with debt
/ average daily production of less than $25,000/boe and trending
The principal methodology used in rating GMX was Moody's Independent Exploration
and Production (E&P) Industry published in December 2008.
GMX Resources Inc. is an independent exploration and production
company headquartered in Oklahoma City, OK.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service information, and
confidential and proprietary Moody's Analytics information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates GMX Resources notes Caa2
250 Greenwich Street
New York, NY 10007
No Related Data.
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