Sable Permian Resources LLC Upgraded To #CCC+# On Temporarily Improved Credit Outlook Negative

Stocks and Financial Services Press Releases Tuesday September 12, 2017 09:13
DALLAS--12 Sep--S&P Global Ratings

DALLAS (S&P Global Ratings) Sept. 11, 2017--S&P Global Ratings today raisedits corporate credit rating on Houston-based E&P company Sable PermianResources LLC to 'CCC+' from 'CCC'. The outlook is negative.

At the same time, we raised the issue-level rating on the company's first-liensecured notes to 'B' from 'D'. The recovery rating remains '1', indicating ourexpectation for very high (90%-100%; rounded estimate: 95%) recovery in theevent of default.

We also raised the issue-level rating on the company's second-lien secureddebt, unsecured debt, and junior subordinated notes, which are held at theparent company level, to 'CCC-' from 'D'. The recovery rating remains '6',indicating our expectation for negligible (0%-10%; rounded estimate: 0%)recovery in the event of default.

The upgrade reflects our reassessment of Sable's leverage, which we now expectwill improve into 2018 because we believe the company will use equity proceedsto aggressively increase production after remaining idle for the first half of2017. In addition to the $744 million in equity proceeds received as part ofits restructuring in May 2017, the company has added $51 million by exercisinga portion of its greenshoe option. As a result, we expect the company to havesufficient liquidity to proceed with development of its assets through 2018.Additionally, we believe the company has completed debt exchanges that wewould categorize as distressed, at least for the next year or two.

S&P Global Ratings' negative outlook on Sable Permian Resources LLC reflectsour expectation that the company's leverage will remain at unsustainablelevels in 2017 and into 2018 under our current production, price, and costassumptions. As a result, we expect the company to quickly outspend cash flowsas it aims to ramp up production and, with no availability under its creditfacility, could strain liquidity.

We could lower the rating if we believe Sable would be unable to fund itsfinancial obligations, which would most likely occur if the company fails todevelop reserves and increase production, causing it to spend more cash thancurrently expected. We could also lower the ratings if the company engaged infurther debt exchanges that we view as distressed or liquidity deterioratedsuch that we foresaw a default within 12 months. Although the companycurrently has no availability under its credit facility, its liquidity issufficient to fund operations and capital spending through 2018, due tosignificant equity proceeds in 2017. However, the company's liquidity positioncould weaken should commodity prices decrease significantly as the companyaims to develop its assets and increase production after remaining idle for

he first part of 2017.

We could raise the ratings on Sable should leverage reach sustainable levels,which would include debt to EBITDA below 6x. Such a scenario would most likelyoccur if commodity prices were to improve in tandem with a successful ramp upin production.

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