Rating Action: Moody’s reviews Montage Resources’ ratings for upgrade upon acquisition by Southwestern Energy
Global Credit Research – 12 Aug 2020
Southwestern’s ratings remain unchanged
New York, August 12, 2020 — Moody’s Investors Service (“Moody’s”) placed the ratings of Montage Resources Corporation’s (Montage) on review for upgrade, including its B2 Corporate Family Rating (CFR), its B2-PD Probability of Default Rating (PDR) and B3 ratings on the company’s senior unsecured notes.
The review of Montage’s ratings follows the announcement that Montage and Southwestern Energy Company (Southwestern, Ba2 stable) have reached an agreement in which Southwestern will acquire Montage in an all stock deal. Southwestern will issue 1.8656 shares for each share of Montage, valuing the Montage equity at $205 million and the enterprise (including debt) at $865 million. The acquisition, which is subject to Montage’s shareholder approval and regulatory reviews, is expected to close in the fourth quarter 2020.
This transaction is favorable for Southwestern as it adds to the company’s Appalachian acreage in both Marcellus rich gas and Utica dry gas windows, and will marginally improve its leverage profile post-acquisition. The combined company will be the third largest Appalachian producer with an expected production scale increased by about 25% to 500 mboe per day. However, the commodity price environment remains challenging and the transaction is relatively small compared to Southwestern’s enterprise value. Therefore, Southwestern’s Ba2 CFR and stable outlook have not been affected.
“The potential ownership by Southwestern is a positive for Montage given Southwestern’s stronger credit profile,” stated Arvinder Saluja, Moody’s Vice President – Senior Analyst. “In addition, Southwestern plans to retire a portion of Montage’s 2023 senior notes using proceeds of an equity issuance.”
On Review for Upgrade:
..Issuer: Montage Resources Corporation
…. Probability of Default Rating, Placed on Review for Upgrade, currently B2-PD
…. Corporate Family Rating, Placed on Review for Upgrade, currently B2
….Senior Unsecured Notes, Placed on Review for Upgrade, currently B3 (LGD5)
..Issuer: Montage Resources Corporation
….Outlook, Changed To Rating Under Review From Stable
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Montage’s ratings were placed on review for upgrade based on the company’s potential ownership by Southwestern which has stronger credit profile and financial resources. If Montage’s remaining notes remain outstanding and are guaranteed by Southwestern then the ratings on the notes would be upgraded to Ba3, the same as Southwestern’s senior notes. If Montage notes were to remain unguaranteed by Southwestern post acquisition but the latter provides separate audited financial statements pertaining to Montage going forward, then its ratings would likely be upgraded based on anticipated parental support. However, in the latter case, the ratings upgrade would likely be limited to one or two notches unless there are significant changes to Montage’s stand-alone credit profile.
Montage Resources Corporation is a publicly traded exploration and production company that operates in the Utica and Marcellus Shales. The company is headquartered in Irving, Texas. Southwestern Energy Company is a US independent exploration and production (E&P) company headquartered in Houston, Texas.
The principal methodology used in these ratings was Independent Exploration and Production Industry published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.
 Form 8-K (SEC), Southwestern Energy Company,12-Aug-2020
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Arvinder Saluja, CFA Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Steven Wood MD - Corporate Finance Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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