S&P Assigns 'BB' Rating to Ultra Petroleum (ULTR); Outlook Stable
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Standard & Poor's Ratings Services said today it assigned its 'BB' corporate credit rating to Houston-headquartered E&P company Ultra Petroleum Corp. (Nasdaq: ULTR). The outlook is stable. At the same time, we assigned our 'BB' issue-level rating to the company's proposed $400 million unsecured notes due 2018 with a recovery rating of '3', indicating our expectation of meaningful (50% to 70%) recovery in the event of a payment default.
We expect Ultra to use proceeds from the offering and about $250 million drawn on its credit facility to fund its $650 million acquisition of oil properties in the Uinta Basin (Utah).
"The stable outlook incorporates our expectation that we are unlikely to raise or lower the corporate credit rating during the next 12 months," said Standard & Poor's credit analyst Carin Dehne-Kiley. "We expect that Ultra will continue to develop its low-risk natural-gas-focused asset base with an industry-leading cost profile, while increasing oil production on the properties to be acquired. We also expect the company will maintain FFO to debt of about 25%."
An upgrade would require the company to materially broaden its geographic and/or product diversification, leading to an upward revision of its business risk profile to "satisfactory", as well as to bring FFO to debt above 45%.
A downgrade could occur if the company's FFO to debt were to fall and remain below 20% for a sustained period, which we view as unlikely within the next year. However, this could occur if Henry Hub natural gas prices were to drop to $3.00/mcf, or below, and Ultra did not rein in capital spending.
We expect Ultra to use proceeds from the offering and about $250 million drawn on its credit facility to fund its $650 million acquisition of oil properties in the Uinta Basin (Utah).
"The stable outlook incorporates our expectation that we are unlikely to raise or lower the corporate credit rating during the next 12 months," said Standard & Poor's credit analyst Carin Dehne-Kiley. "We expect that Ultra will continue to develop its low-risk natural-gas-focused asset base with an industry-leading cost profile, while increasing oil production on the properties to be acquired. We also expect the company will maintain FFO to debt of about 25%."
An upgrade would require the company to materially broaden its geographic and/or product diversification, leading to an upward revision of its business risk profile to "satisfactory", as well as to bring FFO to debt above 45%.
A downgrade could occur if the company's FFO to debt were to fall and remain below 20% for a sustained period, which we view as unlikely within the next year. However, this could occur if Henry Hub natural gas prices were to drop to $3.00/mcf, or below, and Ultra did not rein in capital spending.
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