Score Motion: Moody’s upgrades SM Power’s CFR to B3; outlook is positiveGlobal Credit score Analysis – 22 Mar 2021New York, March 22, 2021 — Moody’s Traders Service, (“Moody’s”) upgraded SM Power Firm’s (SM) Company Household Score (CFR) to B3 from Caa1 and Likelihood of Default Score (PDR) to B3-PD from Caa1-PD. On the identical time, Moody’s additionally upgraded SM’s senior secured score to B2 from B3, its senior unsecured score to Caa1 from Caa2 and its senior unsecured shelf to (P)Caa1 from (P)Caa2. The Speculative Grade Liquidity score was upgraded to SGL-2 from SGL-3. The outlook is optimistic.”The improve of SM’s scores displays the corporate’s bettering debt leverage, considerably decrease likelihood of default and a manageable debt maturity profile.” commented John Thieroff, Moody’s Senior Credit score Officer. “SM’s aggressive value construction and appreciable stock of extremely financial drilling areas within the Midland basin will help modest manufacturing development whereas permitting for debt discount.”Upgrades:..Issuer: SM Power Firm…. Likelihood of Default Score, Upgraded to B3-PD from Caa1-PD…. Speculative Grade Liquidity Score, Upgraded to SGL-2 from SGL-3…. Company Household Score, Upgraded to B3 from Caa1….Senior Secured Second Lien Notes, Upgraded to B2 (LGD3) from B3 (LGD3)….Senior Unsecured Notes, Upgraded to Caa1 (LGD5) from Caa2 (LGD5)….Senior Unsecured Shelf, Upgraded to (P)Caa1 from (P)Caa2Outlook Actions:..Issuer: SM Power Firm….Outlook, Modified To Constructive From StableRATINGS RATIONALESM’s B3 CFR displays its substantial acreage place within the Midland Basin and aggressive value construction, offset by lowered however nonetheless excessive leverage. SM advantages from a manufacturing base (common day by day manufacturing was 127 mboe/d in 2020) that’s related in dimension to many Ba-rated oil producers and a few basin diversification. The corporate’s good stock of Permian drilling areas, able to producing optimistic returns in an oil worth surroundings beneath $40/bbl, offers SM the power to generate mid-single digit share manufacturing development and free money stream for debt discount. As the combo of manufacturing continues to shift towards the Midland Basin from South Texas, SM’s value construction and money margins will proceed to enhance value construction and notice increased money margins. The corporate faces debt maturities in 2021 and 2022, however the quantity of those maturities was considerably lowered by means of a debt change in 2020.SM’s senior unsecured notes are rated Caa1, one notch beneath the B3 CFR, reflecting their subordinated declare to SM Power’s property behind the senior secured credit score facility and the dimensions of the ability. The B2 score on SM’s senior secured second lien notes, one notch above the CFR, displays their advantaged place to the unsecured notes within the firm’s capital construction and the small dimension of the second lien notes issuance relative to SM’s unsecured debt.SM’s SGL-2 score displays Moody’s expectation that SM will keep good liquidity by means of early 2022, primarily as a consequence of ample borrowing capability underneath its revolving credit score facility. The corporate had negligible money and $93 million drawn as of December 31, 2020 underneath its $1.1 billion dedicated revolving credit score facility, which expires in September 2023. The revolver is ruled by two monetary covenants — whole debt to EBITDAX of not larger than 4x and a minimal present ratio requirement of 1x.Money stream has draw back safety, with greater than 75% of its forecasted 2021 oil manufacturing hedged at a minimal common worth of $41.37 per barrel and about 85% of forecasted pure gasoline manufacturing hedged at $2.44 per mmbtu at Henry Hub and $1.81 per mmbtu at Waha (63 and 37% of hedged pure gasoline volumes, respectively.) SM’s subsequent debt maturity is for its $65 million of senior convertible notes due July 1, 2021, adopted by $212 million of senior unsecured notes coming due in November 2022.The optimistic outlook displays the potential SM will be capable of cut back debt by means of money stream enough to warrant an improve throughout the subsequent twelve months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings may very well be upgraded if the corporate is ready to repay its 2021 and 2022 maturities considerably by means of money from operations whereas sustaining retained money stream (RCF) to debt ratio constantly above 25% and a Leveraged Full-Cycle Ratio (LFCR) above 1.25x. Scores may very well be downgraded if LFCR approaches 1x or EBITDAX to curiosity protection falls beneath 2x.SM Power Firm is a Denver, Colorado primarily based publicly traded E&P firm with major manufacturing operations within the Eagle Ford Shale (Webb County) and the Midland Basin (Howard, Upton, Midland and Martin Counties) of Texas.The principal methodology utilized in these scores was Impartial Exploration and Manufacturing Business printed in Might 2017 and accessible at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808. Alternatively, please see the Score Methodologies web page on www.moodys.com for a duplicate of this technique.REGULATORY DISCLOSURESFor additional specification of Moody’s key score assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure type. 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For provisional scores, this announcement offers sure regulatory disclosures in relation to the provisional score assigned, and in relation to a definitive score that could be assigned subsequent to the ultimate issuance of the debt, in every case the place the transaction construction and phrases haven’t modified previous to the task of the definitive score in a fashion that may have affected the score. For additional info please see the scores tab on the issuer/entity web page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit score help from the first entity(ies) of this credit standing motion, and whose scores might change on account of this credit standing motion, the related regulatory disclosures will probably be these of the guarantor entity. 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Additional info on the EU endorsement standing and on the Moody’s workplace that issued the credit standing is out there on www.moodys.com.The International Scale Credit score Score on this Credit score Score Announcement was issued by one among Moody’s associates exterior the UK and is endorsed by Moody’s Traders Service Restricted, One Canada Sq., Canary Wharf, London E14 5FA underneath the regulation relevant to credit standing businesses within the UK. Additional info on the UK endorsement standing and on the Moody’s workplace that issued the credit standing is out there on www.moodys.com.Please see www.moodys.com for any updates on adjustments to the lead score analyst and to the Moody’s authorized entity that has issued the score.Please see the scores tab on the issuer/entity web page on www.moodys.com for extra regulatory disclosures for every credit standing. 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