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Rating Action:

Moody's rates Laredo Petroleum's notes Caa2

05 Jan 2011

$300 million of rated debt affected

New York, January 05, 2011 -- Moody's assigned a Caa2 rating to Laredo Petroleum, Inc.'s (Laredo) proposed offering of $300 million of senior unsecured notes due 2019. Moody's also assigned a Caa1 Corporate Family Rating (CFR) to Laredo. The rating outlook is stable. Proceeds from the notes offering will be used to repay all of Laredo's other outstanding debt, which consists of a $100 million term loan and $152.5 million of borrowings under the company's credit facility.

RATINGS RATIONALE

"Laredo's Caa1 CFR reflects the small scale of the company's production and proven developed reserves and the expectation of rising leverage on production over the next several years as the company outspends cash flow" commented Jonathan Kalmanoff, Moody's Analyst. "The ratings are supported by the long history of the company's management team in the mid-continent region and the financial strength of its private equity sponsor". At November 30, 2010 (pro-forma for the proposed notes offering), debt / average daily production was $30,104/boe and debt / proven developed reserves was $13.22/boe.

The ratings also consider the much larger scale of Laredo's total proven reserve base (which is 70% undeveloped), its geological diversification, an increasing focus on liquids production as the company develops its Wolfberry acreage, the company's large drilling inventory, and a focus on organic growth rather than growth through large acquisitions of reserves and production.

The stable outlook reflects Moody's expectation that Laredo will maintain adequate liquidity as it outspends cash flow to develop its properties. In the future positive ratings action could result if average daily production were to increase from current levels of 10 mboe/d to above 15 mboe/d with debt / average daily production of less than $25,000/boe and trending downward, achieved through either organic growth or a large equity infusion. Negative ratings action could result if liquidity were to tighten due to unexpected production declines relative to debt funded capital spending, or a reduction in availability under the company's borrowing base credit facility.

Laredo has adequate liquidity to meet its cash needs through the end of 2011. At September 30, 2010 pro-forma for the proposed notes offering and the December 30, 2010 equity contribution of $23 million from Warburg Pincus, the company will have $200 million of availability under its credit facility and $62 million of cash. This will provide an adequate margin of liquidity as Laredo outspends cash flow during 2011. The credit facility, which is being amended concurrently with the notes offering, has a $500 million commitment with a current borrowing base of $200 million. The borrowing base is re-determined semi-annually with the next re-determination scheduled for May 1, 2011. Financial covenants under the facility are EBITDAX / interest of not less than 2.5x and a current ratio of not less than 1.0x. At September 30, 2010 pro-forma, Laredo's EBITDAX / interest was 3.1x. There are no debt maturities until July 7, 2015 when the credit facility matures. As an additional source of liquidity, the company has $50 million remaining under an equity commitment from private equity sponsor Warburg Pincus which it could draw on at its discretion. Substantially all of Laredo's assets are pledged as security under the credit facility which limits the extent to which asset sales could provide a source of additional liquidity if needed.

The Caa2 senior unsecured note rating reflects both the overall probability of default of Laredo, to which Moody's assigns a PDR of Caa1, and a loss given default of LGD5-72%. The size of the $200 million 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 principal methodology used in rating Laredo was Moody's Independent Exploration and Production (E&P) Industry published in December 2008. The methodology is available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Laredo Petroleum, Inc. is an independent exploration and production company headquartered in Tulsa, OK.

REGULATORY DISCLOSURES

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 for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Jonathan Kalmanoff
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Steven Wood
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's rates Laredo Petroleum's notes Caa2
No Related Data.
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