S&P Affirms Corp. Ratng on Bill Barrett (BBG) Following Asset Sale

Standard & Poor's Ratings Services affirmed its 'B+' corporate credit rating on Denver-based Bill Barrett (NYSE: BBG), following its agreement to sell assets in the Piceance and Powder River Basins for a total value of $757 million. The outlook is stable.

At the same time, we lowered our issue-level rating on the company's unsecured debt to 'B-' from 'B' and revised our recovery rating on the debt to '6' from '5'. The revised recovery rating on this debt reflects our expectation of negligible (0% to 10%) recovery in the event of a payment default.

"We are affirming the ratings on Bill Barrett Corp. following the company's announcement that it has agreed to sell natural-gas-focused properties in the Colorado Piceance Basin and oil-focused assets in the Wyoming Powder River Basin to multiple parties for total consideration of $757 million, said Carin Dehne-Kiley.

As a result of the asset sales, we are revising our assessment of Bill Barrett's business risk profile to "vulnerable" from "weak." We assess Bill Barrett's financial risk profile as "aggressive." The company expects to use a portion of the cash proceeds to pay down outstanding borrowings on its credit facility, currently about $280 million, with the remainder going to fund capital spending next year. We classify Bill Barrett's liquidity as "adequate," given that we expect sources of liquidity to exceed uses by 1.2x over the next 12 months.

The stable outlook reflects our view that Bill Barrett will continue to expand its oil production and reserves, while maintaining FFO to debt above 30% and debt to EBITDA below 3x.

We could lower our rating if we expect FFO to debt to fall below 30% for a sustained period, which would most likely occur if production did not ramp up as anticipated from the Niobrara, or if capital spending exceeded our estimates without corresponding production growth.

While we consider an upgrade unlikely over the next 12 months, we could consider raising the rating if Bill Barrett were able to meaningfully increase its size and scale, and increase its percentage of proved developed reserves, while maintaining appropriate leverage.

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