Moodys last update 201828 Aug 2019 23:05
This is only serious update we had since 10 months.
Analysts are completely wrong and will need to change view
Looking forward to next Moodys update!
Rating Action: Moody's upgrades EnQuest's rating to B2, stable outlook
16 Nov 2018
London, 16 November 2018 -- Moody's Investors Service, ("Moody's") today upgraded EnQuest PLC's (EnQuest) corporate family rating (CFR) to B2 from B3 and probability of default rating (PDR) to B2-PD from B3-PD. Concurrently, Moody's also upgraded the senior unsecured rating of the $677.5 million high yield notes due 2022 to B3 from Caa1. The outlook on all ratings remains stable.
RATINGS RATIONALE
The rating upgrade reflects the positive effect that Enquest's recent exercise of its option to acquire from BP p.l.c. (A1 stable) the 75% equity interest in Magnus it does not already own, will have on its hydrocarbon reserve base and production profile. The deal should add approximately 60 million barrels of oil equivalent (mmboe) to the group's 2P reserves of 210 mmboe as at 1 January 2018, and boost its production, which averaged 54.0 thousand barrels of oil equivalent per day (kboepd) in H1 2018, by 11.4 kboepd immediately post closing expected to take place prior to year-end 2018. In parallel with the continuing ramp-up of production at Kraken, the acquisition will give a significant boost to Enquest's operating profitability and free cash flow going into 2019.
Moody's considers that the impact of the deal on Enquest's financial profile is mitigated by the funding structure of the acquisition. The consideration of the transaction comprises (i) a base of $300 million (plus or minus customary adjustments), which includes $100 million to be paid in cash and a $200 million vendor loan from BP, and (ii) the entry into a cash flow sharing arrangement whereby BP is entitled to 50% of the net profits arising from the 75% interest (subject to a cap of $1 billion).
Subsequent to exercising the option, EnQuest raised $138 million through a rights issue that will be primarily used to pay the $100 million cash component of the base consideration. In addition, vendor loan repayments and the deferred consideration will be payable to BP out of the cash flow generated by the transaction assets. It is expected that at year-end 2018, the vendor loan will have already been reduced by approximately $100 million of backdated cash flows from the 75% Magnus interest that will have accrued to EnQuest since 1 January 2017, the economic date of the transaction.
Based on pro-forma financial statements published in the rights issue prospectus, EnQuest has a provision of $418 million immediately post closing, representing the outstanding vendor loan and BP's entitlement under the cash flow sharing arrangement discounted to present date. Moody's will treat this provision as debt.
However, this adjustment to debt will be partly offset by the reduction in adjusted total debt of around $270 million (net of the new $175 million
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