Score Motion: Moody’s charges Talos’ second lien notes B3, B2 CFR
World Credit score Analysis – 16 Dec 2020
New York, December 16, 2020 — Moody’s Buyers Service (Moody’s) assigned scores to Talos Manufacturing Inc. (Talos), together with a B2 Company Household Score (CFR), B2-PD Likelihood of Default Score (PDR), B3 score to its proposed $400 million second lien secured notes due 2026 and SGL-3 Speculative Grade Liquidity (SGL) score. The score outlook is steady.
Internet proceeds from the second lien notes providing can be primarily used to repay Talos’ current second lien notes. Any remaining proceeds are supposed for use for common company functions, together with to repay a portion of its revolver borrowings. Rankings are topic to Moody’s evaluate of ultimate documentation and the execution of the transaction as proposed.
“The proposed second lien notes issuance ought to enhance Talos’ monetary flexibility whereas repaying current debt and increasing debt maturities,” commented Amol Joshi, Moody’s Vice President and Senior Credit score Officer.
Talos Manufacturing Inc. is a wholly-owned subsidiary of publicly-traded Talos Power Inc. The B2 CFR is assigned at Talos Manufacturing Inc., which is the borrower underneath its financial institution facility and the issuer of the second lien notes.
..Issuer: Talos Manufacturing Inc.
….Senior Secured Common Bond/Debenture, Assigned B3 (LGD5)
…. Likelihood of Default Score, Assigned B2-PD
…. Speculative Grade Liquidity Score, Assigned SGL-3
…. Company Household Score, Assigned B2
..Issuer: Talos Manufacturing Inc.
….Outlook, Assigned Steady
Talos’ B2 CFR displays its reasonable scale, asset focus and challenges of working within the Gulf of Mexico (GoM), particularly deepwater. Working within the GoM entails dangers of comparatively brief reserve lives and significant plugging and abandonment prices. The score is supported by Talos’ energetic hedging program, publicity to premium crude pricing, comparatively low danger behind-pipe drilling and recompletion alternatives, and an skilled administration staff that has a multi-year monitor file of managing operations within the GoM. The corporate is acquisitive and faces the prospect of further spending to discover and develop its belongings offshore Mexico, together with growing its oil & gasoline discovery within the Zama Discipline. Talos’ leverage metrics are strong, however these metrics going ahead will rely on how the corporate funds its future spending and acquisitions.
Talos’ proposed second lien notes are rated B3, one notch under the B2 CFR, regardless of the precedence declare of its massive revolver within the capital construction. The B3 score for the proposed second lien notes is extra applicable than the score instructed by Moody’s Loss Given Default for Speculative-Grade Firms Methodology due to our expectation that the relative proportion of second lien debt will enhance over time in addition to the robust asset protection supplied by Talos’ proved developed reserves.
Talos’ SGL-3 score displays its sufficient liquidity by 2021. Talos had $32 million in money at September 30. The corporate’s revolver has a $985 million borrowing base and matures in Might 2022, with $650 million drawn and $13.6 million in letters of credit score issued underneath the revolver at September 30. In early December, Talos raised roughly $70 million by an fairness providing supporting its liquidity. Talos’ monetary covenants embody debt to EBITDAX of lower than 3x and a present ratio higher than 1x, and Talos ought to be in compliance with these covenants by 2021. Professional forma for the second lien issuance and compensation of the prevailing second lien notes, Talos has no materials near-term maturities till Might 2022 when its revolver matures.
The steady outlook displays Moody’s expectation that Talos will generate free money movement in 2021 and keep reasonable leverage metrics.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The scores might be upgraded if Talos diversifies and grows manufacturing and money movement in a steady to enhancing business setting, the corporate generates constant free money movement, its retained money movement (RCF) to debt ratio is above 40%, leveraged full cycle ratio (LFCR) comfortably exceeds 1x offering ample returns on tasks whereas sustaining sufficient liquidity.
Moody’s might think about a downgrade if manufacturing falls under 50 thousand barrels of oil equal per day, RCF/debt ratio falls under 25%, liquidity deteriorates, leverages will increase materially because of capital spending or acquisitions, or the corporate’s capital productiveness declines considerably.
The principal methodology utilized in these scores was Unbiased Exploration and Manufacturing Trade printed in Might 2017 and out there at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808. Alternatively, please see the Score Methodologies web page on www.moodys.com for a replica of this system.
Talos Manufacturing Inc., a wholly-owned subsidiary of publicly-traded Talos Power Inc., is an exploration & manufacturing firm whose belongings are primarily positioned on the continental shelf and deepwater areas within the US Gulf of Mexico.
For additional specification of Moody’s key score assumptions and sensitivity evaluation, see the sections Methodology Assumptions and Sensitivity to Assumptions within the disclosure type. Moody’s Score Symbols and Definitions may be discovered at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For scores issued on a program, sequence, class/class of debt or safety this announcement offers sure regulatory disclosures in relation to every score of a subsequently issued bond or be aware of the identical sequence, class/class of debt, safety or pursuant to a program for which the scores are derived solely from current scores in accordance with Moody’s score practices. For scores issued on a help supplier, this announcement offers sure regulatory disclosures in relation to the credit standing motion on the help supplier and in relation to every specific credit standing motion for securities that derive their credit score scores from the help supplier’s credit standing. For provisional scores, this announcement offers sure regulatory disclosures in relation to the provisional score assigned, and in relation to a definitive score which may 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 project of the definitive score in a way that might 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 could change because of this credit standing motion, the related regulatory disclosures can be these of the guarantor entity. Exceptions to this strategy exist for the next disclosures, if relevant to jurisdiction: Ancillary Companies, Disclosure to rated entity, Disclosure from rated entity.
The scores have been disclosed to the rated entity or its designated agent(s) and issued with no modification ensuing from that disclosure.
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a.With Rated Entity or Associated Third Social gathering Participation: YES
b.With Entry to Inner Paperwork: YES
c.With Entry to Administration: YES
For extra info, please confer with Moody’s Coverage for Designating and Assigning Unsolicited Credit score Rankings out there on its web site www.moodys.com.
Regulatory disclosures contained on this press launch apply to the credit standing and, if relevant, the associated score outlook or score evaluate.
Moody’s common rules for assessing environmental, social and governance (ESG) dangers in our credit score evaluation may be discovered at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The World Scale Credit score Score on this Credit score Score Announcement was issued by one among Moody’s associates outdoors the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Primary 60322, Germany, in accordance with Artwork.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit score Score Companies. Additional info on the EU endorsement standing and on the Moody’s workplace that issued the credit standing is obtainable on www.moodys.com.
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Amol Joshi, CFA VP-Sr Credit score Officer Company Finance Group Moody's Buyers Service, Inc. 250 Greenwich Road New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Consumer Service: 1 212 553 1653 Steven Wooden MD - Company Finance Company Finance Group JOURNALISTS: 1 212 553 0376 Consumer Service: 1 212 553 1653 Releasing Workplace: Moody's Buyers Service, Inc. 250 Greenwich Road New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Consumer Service: 1 212 553 1653
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