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Rating Action:

Moody's rates new CNX Resources' notes B3, changes outlook to positive

24 Nov 2020

New York, November 24, 2020 -- Moody's Investors Service, ("Moody's") affirmed the B1 corporate family rating (CFR) and B1-PD probability of default rating (PDR) of CNX Resources Corporation (CNX) and assigned a B3 rating to its new senior unsecured guaranteed notes. The company's Speculative Grade Liquidity (SGL) Rating was changed to SGL-2 from SGL-3. The outlook on the CNX's ratings was changed to positive from negative.

Concurrently, Moody's affirmed the B1 CFR and B1-PD PDR of CNX Midstream Partners LP (CNXM), a wholly owned subsidiary of CNX, and affirmed the B3 rating of CNXM's senior unsecured guaranteed notes. Moody's withdrew CNXM's SGL-3 rating. CNXM's outlook was changed to positive from negative.

"CNX's financial discipline, flexible capital allocation program and extensive hedging program will continue to support solid credit metrics and free cash flow generation in 2021-22, and will allow continued debt reduction," said Elena Nadtotchi, Senior Vice President at Moody's.

Assignments:

..Issuer: CNX Resources Corporation

....Senior Unsecured Regular Bond/Debenture, Assigned B3 (LGD5)

Upgrades:

..Issuer: CNX Resources Corporation

....Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3

Affirmations:

..Issuer: CNX Resources Corporation

....Probability of Default Rating, Affirmed B1-PD

....LT Corporate Family Rating, Affirmed B1

....Senior Unsecured Regular Bond/Debenture, Affirmed B3 (LGD5)

..Issuer: CNX Midstream Partners LP

....Probability of Default Rating, Affirmed B1-PD

....LT Corporate Family Rating, Affirmed B1

....Senior Unsecured Regular Bond/Debenture, Affirmed B3 (LGD5)

Outlook Actions:

..Issuer: CNX Resources Corporation

....Outlook, Changed To Positive From Negative

..Issuer: CNX Midstream Partners LP

....Outlook, Changed To Positive From Negative

RATINGS RATIONALE

The change of the outlook to positive on CNX's CFR reflects improved liquidity and lower refinancing risk achieved by CNX as a result of the recent repayment of its 2022 notes. CNX's amended investment and funding plans place the company on the path of sustained free cash flow generation. CNX aims to continue to reduce debt and is targeting a 1.5x debt/EBITDA leverage level in the medium term.

CNX's new notes are rated B3, at par with its existing senior notes and two notches below the B1 CFR, given the significant size of the secured credit facility in the capital structure that has a priority claim and security over substantially all of the E&P assets. The senior notes are unsecured and guaranteed by subsidiaries (excluding CNXM) on a senior unsecured basis.

CNX's B1 CFR is supported by its effective management of commodity price risks, as demonstrated in 2020. The company maintains an extensive hedging program with minimal commodity price risk in 2021-22 and beyond. In response to lower natural gas prices in an oversupplied domestic market, CNX reduced capital investment to keep its production level flat in 2020-2021 and should generate sizable free cash flow, supported by its hedged revenues. Moody's expects CNX to maintain solid leverage metrics underpinned by its hedging arrangements and a steady reduction in debt in the next several years. The B1 CFR further reflects CNX's single basin concentration in Appalachia, subjecting its natural gas production to volatile basis differentials, that the company also hedges.

CNX maintains good liquidity through 2021, reflected in the SGL-2 rating. The liquidity position is underpinned by Moody's expectation that the business will generate sizable positive free cash flow in 2020-21, underpinned by the extensive hedging and reduced capital investment. Liquidity is also supported by its committed $1.9 billion secured revolving credit facility that matures in April 2024. As of September 30, 2020, CNX reported about $1.3 billion availability under its secured credit facility and full compliance under the covenants. The facility includes two financial covenants (a maximum net leverage ratio of 4.0x and a minimum current ratio of 1x) and Moody's expects CNX to remain in compliance with covenants though 2021.

CNX benefits from an extended maturity profile, with the next bond maturity in 2026, when the company will need to manage several maturities, including $400 million notes issued by CNXM and $345 million convertible notes issued by CNX.

CNXM's B1 CFR reflects its modest size and high degree of geographical and counterparty concentration with CNX. Long term fixed fee contracts between CNX and CNXM limit commodity and commercial risks for CNXM, while it retains some exposure to volume risks, mitigated in part under CNX's minimum well drilling obligations that last through 2023.

CNXM maintains adequate liquidity, underpinned by a $600 million senior secured revolving facility. The facility matures in April 2024 and is supported by assets and cash flow of the midstream subsidiary. It has several leverage covenants, including debt/EBITDA not exceeding 5.25x, secured debt/EBITDA not exceeding 3.5x and minimum interest coverage of at least 2.5x. We expect CNXM to maintain good headroom for future compliance with these covenants through 2021.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

CNX's ratings may be upgraded if it demonstrates replacement of reserves amid modest growth in production and a broader recovery in the natural gas sector. The ratings could be upgraded if CNX maintains lower leverage, with RCF/debt around 30% and debt/production below $10,000/boe, and sustained solid profitability and capital returns, with LFCR maintained above 1.5x. Assuming no further changes in the capital structure, an upgrade of the CFR to Ba3 would likely entail a two notch upgrade of CNX's senior unsecured notes to B1.

A weaker refinancing position, deteriorating cash margins, capital returns and operating cash flow or a substantial increase in leverage with RCF/debt declining below 20% could result in a downgrade of the ratings.

CNX Resources Corporation is a sizable publicly traded independent exploration and production company operating in the Appalachian Basin. It controls substantial resources in Marcellus and Utica Shale.

CNX Midstream Partners LP, a wholly owned subsidiary of CNX, owns, operates, develops and acquires gathering and other midstream energy assets to service natural gas production in the Appalachian Basin in Pennsylvania and West Virginia.

The principal methodology used in rating CNX Resources Corporation was Independent Exploration and Production Industry published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808. The principal methodology used in rating CNX Midstream Partners LP was Midstream Energy published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147839. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

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.

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.

Elena Nadtotchi
Senior Vice President
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
Client Service: 1 212 553 1653

No Related Data.
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