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Rating Action:

Moody's rates new Gulfport notes B3

18 May 2021

New York, May 18, 2021 -- Moody's Investors Service, ("Moody's") assigned new ratings to Gulfport Energy Corporation (Gulfport) including a B2 Corporate Family Rating (CFR), a B2-PD Probability of Default Rating (PDR) and a B3 rating to the $550 million senior unsecured notes issued by its subsidiary, Gulfport Energy Operating Corporation. Moody's also assigned an SGL-3 Speculative Grade Liquidity rating. The outlook is stable.

These are initial ratings for the restructured Gulfport, following its emergence from bankruptcy on May 17th 2021.

"Gulfport will benefit from reduced financial leverage after eliminating about $1 billion in debt through the Chapter-11 bankruptcy process," said Elena Nadtotchi, Senior Vice President at Moody's. "The company also improved its cost structure by renegotiating certain fixed transportation contracts and will focus on improving its capital efficiency and operating cash flow generation to be able to continue to reduce debt and build a greater level of financial flexibility."

Assignments:

..Issuer: Gulfport Energy Corporation

.... Corporate Family Rating, Assigned B2

.... Probability of Default Rating, Assigned B2-PD

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

..Issuer: Gulfport Energy Operating Corporation

....Senior Unsecured Notes, Assigned B3 (LGD5)

Outlook Actions:

..Issuer: Gulfport Energy Corporation

....Outlook, Assigned Stable

RATINGS RATIONALE

Gulfport's B2 CFR recognizes the sizable reduction in debt achieved as a result of the Chapter 11 bankruptcy process and reflects Moody's expectation that the company will continue to reduce debt and will build an appropriate level of financial flexibility for the rating. The company managed to renegotiate certain fixed transportation contracts and reduce its minimum volume commitments to midstream companies as it scaled back its production. Assuming limited growth, Moody's expects Gulfport's unit economics to remain less competitive than the performance of its in-basin peers. Gulfport's capacity to generate free cash flow, reduce debt and reduce financial costs will depend on realizing higher natural gas prices, and that will be supported by hedging in 2021. Gulfport's focus will remain on improving its operational performance, raising efficiency of capital reinvestment and on achieving consistent free cash flow generation to support contracted debt repayments and adequate liquidity.

With strategic focus shifting away from production growth, Gulfport aims to reduce leverage and build financial flexibility, as well as maintain compliance with relatively strict leverage covenants agreed in its new bank facilities. The rating further incorporates Gulfport's relatively modest size, as measured by its annual production and proved developed reserves relative to other natural gas focused peers, as well as high asset concentration.

Gulfport's senior unsecured notes are rated B3, one notch below B2 CFR, reflecting the large size and priority treatment of the senior secured revolving credit facility and term loan. The notes are issued by its direct wholly owned subsidiary, Gulfport Energy Operating Corporation, are guaranteed by Gulfport and are also guaranteed on an unsecured basis by the same operating subsidiaries that guarantee the senior secured revolving credit facility and term loan.

Moody's views Gulfport's liquidity as adequate, reflected by its SGL-3 rating. As part of its bankruptcy exit financing, Gulfport established a $1.5 billion exit facility, with elected commitment of $580 million, comprised of a $400 million first lien reserve-based lending (RBL) revolving credit facility and a $180 million amortizing first lien term loan. The term loan ranks pari passu with the revolver and shares the same security package. Gulfport will have limited liquidity available under the RBL upon exit from the bankruptcy and will depend on free cash flow generation to support its adequate liquidity.

The revolver and term loan mature in 2024 and are subject to a maximum net debt to EBITDAX covenant of 3x, a maximum net senior secured debt to EBITDAX ratio of 2x, and a current ratio covenant requiring coverage of 1.0x. Moody's expects Gulfport to comply with both covenants through middle of 2022. Gulfport's ability to generate free cash flow and maintain comfortable compliance with leverage covenants will depend on realizing higher natural gas prices, which is supported by hedging in 2021, covering about 84% of its projected production. The hedges will start to roll off in early 2022, but Moody's expects the company to continue to use hedges to manage commodity risk.

The stable outlook reflects the company's significant hedges in 2021 and the expectation that it will continue to proactively manage its liquidity and debt repayments in the next 12 months.

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

Gulfport's B2 CFR could be upgraded if the company builds appropriate level of financial flexibility as it accelerates debt reduction and demonstrates the ability to fund its operations and debt repayments from operating cash flow, while maintaining or modestly growing production and reserves at competitive returns on capital relative to peers. The company maintaining strong leverage metrics relative to cash flow and on production volumes, with debt/production below $4,000/boe and a leverage full cycle ratio (LFCR) trending to 1.5x could be supportive of a ratings upgrade. The ratings may be downgraded if Gulfport fails to fund operations and capital reinvestment with operating cash flow, its LFCR remains below 1x or if its liquidity position weakens.

Gulfport is a medium sized exploration and production company with principal producing assets in the Utica Shale and SCOOP basins in Oklahoma, and is headquartered in Oklahoma City, Oklahoma.

The principal methodology used in these ratings was Independent Exploration and Production Industry published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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