Woodford Express LLC Downgraded To 'CCC+' From 'B' On Unsustainable Capital Structure, Outlook Negative

  • After revising our commodity price assumptions, we expect the volumes from Woodford Express LLC's (Woodford) dedicated acreage to decline significantly this year. Woodford's main customer, Gulfport Energy Corporation (Gulfport), which we downgraded on March 20, 2020, announced its plan to scale back its number of completed wells in the SCOOP basin in 2020.
  • After revising our cash flow forecast, we are lowering our issuer credit rating on Woodford to 'CCC+' from 'B' to indicate that, given its expected leverage, we view its capital structure as unsustainable and dependent on favorable business, financial, and economic conditions to meet its financial commitments.
  • At the same time, we are lowering our issue-level rating on the company's senior secured term loan to 'CCC+' from 'B'. Our '3' recovery rating remains unchanged.
  • The negative outlook reflects our expectation that a default or distressed exchange has become increasingly likely.
NEW YORK (S&P Global Ratings) March 25, 2020—S&P Global Ratings today took the rating actions above.
Gulfport, which supplies over 70% of Woodford's volumes, announced that it is lowering its drilling projections in the SCOOP basin in 2020. Gulfport was also downgraded to "CCC+" with a negative outlook on Friday March 20, 2020. We believe the company's S&P-adjusted credit metrics will be significantly more stressed than we previously expected based on our updated volume forecast. We now anticipate that Woodford's debt-to-EBITDA will remain about 8x over the next few years, which suggests that its capital structure is unsustainable under the current commodity price environment. We also think that its other customers may revise their drilling plans given the sustained low energy prices, general turmoil in the energy markets, and deteriorating macroeconomic outlook over the past month. Therefore, we now believe that Woodford could undertake a distressed debt exchange or default at some point in the future without support from its sponsor.
The negative outlook on Woodford reflects our expectation that the company will depend upon favorable business, financial, and economic conditions to meet its financial commitments. We expect its leverage to remain elevated over the next two years with debt to EBITDA of more than 8x in 2020.
We could downgrade Woodford if we believe a default or distressed exchange offering is likely over the next 12 months.
We could raise our rating on Woodford if we expect its capital structure to be sustainable, which could occur if there is an increase in drilling activity on its dedicated acreage.
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