New York, March 28, 2022 -- Moody's Investors Service ("Moody's") upgraded Hunt Oil Co. of Peru L.L.C., Suc. Del Peru's ("Hunt Peru") corporate family rating and its senior unsecured rating to Ba1 from Ba2 given its robust cash generation and declining debt as well as the improved credit profile of its parent company, Hunt Oil company; the rating outlook is stable.
Upgrades:
..Issuer: Hunt Oil Co. of Peru L.L.C., Suc. Del Peru
.... Corporate Family Rating, Upgraded to Ba1 from Ba2
....Senior Unsecured Regular Bond/Debenture, Upgraded to Ba1 from Ba2
Outlook Actions:
..Issuer: Hunt Oil Co. of Peru L.L.C., Suc. Del Peru
....Outlook, Remains Stable
RATINGS RATIONALE
Hunt Peru's ratings upgrade reflects the company's sustained robust cash generation and Moody's expectation that it will reduce debt and maintain its strong capital structure unchanged in the foreseeable future. The rating upgrade also reflects the improved credit profile of Hunt Peru's parent company, Hunt Oil company.
The Ba1 corporate family rating on Hunt Peru considers the company's small production size; asset concentration in only two gas blocks; operating dependence on only two pipelines, owned by Transportadora de Gas del Peru (TGP) (Baa1 stable); no operating control over the gas blocks; vulnerability to commodities prices; high dividend payout rate and Moody' expectation of continued volatile natural gas and natural gas liquids prices.
On the other hand, Hunt Peru's ratings are supported by the company's solid credit metrics for its rating category; large proved gas reserves, equivalent to about 18 years of life based on 2021 production; strong asset base in the world-class, prolific Camisea gas fields; low volume risk given solid demand both in the local and international markets; the strategic importance of the Camisea fields to the Government of Peru (Baa1 stable); and the company's experienced management team.
Moody's considers the debt agreement's provisions in Hunt Peru's unsecured notes, that help ring-fence Hunt Peru from its parent, to be beneficial to its credit profile since the notes represent 100% of the company's debt.
Hunt Peru has good liquidity. Cash in the amount of about $140 million in December 2021 plus around $500 million in cash from operations through mid-2023, as expected by Moody's, will fund $75 million in debt amortization, $40 million in capital spending, plus interest payments and dividends in the period. Hunt Peru also counts on a $30 million three-year committed revolving credit facility that matures in May 2024.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Hunt Peru's Ba1 ratings are constrained by its production size and the high dividend payout to its parent company. A dividend policy that protects creditors or a significant debt reduction on a sustained basis, without affecting its operating performance, could trigger a positive rating action on Hunt Peru's ratings. The credit profile of Hunt Peru's parent company, Hunt Oil Company, would be relevant information for Moody's to consider a positive action on Hunt Peru's rating.
Hunt Peru's Ba1 ratings could be downgraded if it faces extended operational disruptions or if its production declines significantly. An interest coverage ratio, as measured by EBITDA/interest expense, below 5 times could also trigger a negative rating action.
The principal methodology used in these ratings was Independent Exploration and Production published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1284973. 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_1288235.
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.
Nymia C. Almeida
Senior Vice President
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Ave. Paseo de las Palmas
No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
JOURNALISTS: 1 888 779 5833
Client Service: 1 212 553 1653
Marcos Schmidt
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 0 800 891 2518
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
