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Bond Market News
Southwestern Energy Upgraded to BB
September 2, 2021
US exploration and production (E&P) company Southwestern Energy Co. has been upgraded to BB from BB- by S&P after it completed the acquisition of privately held Haynesville operator Indigo Natural Resources in a deal worth ~$2.7bn. The acquisition included a cash component of $400mn, ~339mn Southwestern shares, and the assumption of $700mn of Indigo senior notes and will provide synergies and geographic diversification to the energy company. S&P said, “We now project the company’s funds from operations (FFO) to debt in the range of 30-35% in 2021, increasing to 45%-50% in 2022 and debt to EBITDA in the range of 2.5x-3x in 2021, decreasing to 1.5x-2x in 2022 as the acquisition of Indigo is integrated. Additionally, the company expects to generate more than $2.0bn of free cash flow through 2023 under current strip prices and its existing hedge program.” The significant free cash flow would support debt repayment and thereby improve the debt leverage. The rating action comes with a positive outlook reflecting that credit measures of the oil company are expected to improve through 2022 which would help it pay out its revolver and remaining $207mn 4.1% 2022s. The company is rated BB+ by Fitch and Ba2 by Moody’s.
Its 6.45% 2025s and 7.75% 2027s were up 0.25 and 0.3 points to trade at 109.75 and 108.66 on the secondary markets.
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