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Rating Action:

Moody's rates MEG Energy's term loan Ba1; affirms Ba3 CFR

Global Credit Research - 11 Feb 2013

Approximately $3.5 billion of debt affected

NOTE: On February 13, 2013, the press release was revised as follows: Corrected the issuer name to MEG Energy Corp. in the first sentence of the third paragraph of the Ratings Rationale section. Revised release follows.

Toronto, February 11, 2013 -- Moody's Investors Service assigned a Ba1 rating to MEG Energy Corp.'s (MEG) US$1 billion senior secured term loan due 2020. The Ba3 Corporate Family Rating (CFR), Ba3-PD Probability of Default Rating (PDR), existing Ba1 term loan due 2018, Ba1 senior secured revolving credit facility rating and B1 senior unsecured notes rating were affirmed. The Speculative Grade Liquidity rating of SGL-2 remained unchanged. The rating outlook remains stable.

The proceeds of the term loan will be used to refinance MEG's existing term loan due 2018.

Assignments:

..Issuer: MEG Energy Corp.

....Senior Secured Bank Credit Facility, Assigned Ba1

....Senior Secured Bank Credit Facility, Assigned a range of LGD2, 22 %

Affirmations:

..Issuer: MEG Energy Corp.

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

.... Corporate Family Rating, Affirmed Ba3

....Senior Unsecured Regular Bond/Debenture Mar 15, 2021, B1, LGD5, 77 %

....Senior Unsecured Regular Bond/Debenture Jan 30, 2023, B1, LGD5 77 %

RATINGS RATIONALE

MEG's Ba3 CFR reflects a high debt level, the execution risk of constructing and ramping up Phase 2B to targeted levels through 2014, MEG's relatively small production base, and exposure to volatile light/heavy differentials. However, the rating also reflects MEG's significant cash position, which along with cash flow will enable MEG to complete and commission Phase 2B in mid to late 2013 as well as advance its infill well project. We expect 80,000bbls/d of total production by early 2015 from Phases 1, 2, 2B and the infill wells. The rating also considers MEG's substantial reserves and land position in key productive areas of the Athabasca oil sands region, all of which will be developed using steam assisted gravity drainage (SAGD) techniques, and amongst best-in-class SAGD assets evidenced by its favorable steam oil ratio (SOR) of 2.4. The company also benefits from 50% ownership of the Access pipeline. In accordance with our Loss Given Default Methodology, the US$1 billion secured revolver and the US$1 billion secured term loan, which rank pari passu, are rated Ba1, two notches above the Ba3 CFR, reflecting the cushion provided by lower ranking unsecured notes. The US$800 million and US$750 million senior unsecured notes are rated B1, one notch below the CFR.

The SGL-2 speculative grade liquidity rating reflects MEG's good liquidity. As of December 31, 2012 MEG had C$2 billion of cash and short-term investments. With an undrawn $1 billion revolver, which matures in 2017, MEG will have ample liquidity to cover negative free cash flow of about C$1.3 billion through 2013 as it moves toward completion of Phase 2B. MEG has no financial covenants and good sources of alternate liquidity through its ability to monetize non-core assets or potentially joint venture their 100%-owned properties at Christina Lake or Surmont.

The principal methodology used in rating MEG Energy Corp. was the Global Inedpendent Exploration and Production Industry Methodology 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.

MEG is a Calgary, Alberta based publicly-held SAGD oil sands development and operating company.

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.

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.

Terry Marshall
Senior Vice President
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 MEG Energy's term loan Ba1; affirms Ba3 CFR
No Related Data.

 

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