TLM.PR.A Downgraded to Pfd-3 by DBRS, Trend Negative

DBRS has announced that it:

DBRS has today downgraded the Issuer Rating and Unsecured Debentures & Medium-Term Notes rating of Talisman Energy Inc. (Talisman or the Company) to BBB from BBB (high), and changed the trend to Negative. DBRS has also downgraded the Company’s Preferred Shares rating to Pfd-3 from Pfd-3 (high), with a Negative trend.

On April 16, 2014, DBRS placed the ratings of Talisman Under Review with Negative Implications. The rating action reflected DBRS’s concern about the continued challenging natural gas market environment in North America (approximately 40% of total production in H1 2014), high capital expenditures (capex) (despite a 20% reduction from 2012), ongoing operational and production reliability issues in the North Sea, and its implication on Talisman’s credit risk profile. The Company recently released its H1 2014 financial results, which remained relatively weak due to the aforementioned negative driving factors. The reduced operating performance and weakened credit metrics have resulted in a credit risk profile that is no longer consistent with a BBB (high) rating.

DBRS has changed the trend to Negative on the ratings as DBRS believes a meaningful recovery will remain challenging, largely driven by the ongoing weak natural gas market outlook in North America, continued growth capex initiatives and capex commitment associated with the North Sea operations. In the absence of much stronger commodity prices, Talisman will have to continue to execute a combination of the following to maintain an adequate financial profile: (1) growth capital spending curtailment; (2) asset sales; and (3) joint venture agreements with upfront cash receipts, with the proceeds being used to reduce leverage. While DBRS acknowledges the Company’s track record on divesting non-core assets on a timely basis, DBRS views further significant non-core asset divestitures to remain challenging, particularly the announced North Sea assets with significant decommissioning obligations and production reliability issues. Kurdistan assets (the other non-core assets announced for sale) are exposed to heightened political instability in Iraq. If Talisman is successful in returning to a free cash flow neutral position while improving its credit metrics on a sustainable basis, which would largely be influenced by the timing of the North Sea asset divestiture (the North Sea operations have continued to result in significant cash flow deficits), DBRS may consider changing the trend to Stable. However, continued weak operating performance and cash flow deficits in the absence of timely asset divestitures would result in further rating pressure.

TLM.PR.A was last mentioned on PrefBlog when the underwriters held a clearance sale. This issue is a FixedReset, 4.20%+277, announced 2011-12-5. It is tracked by HIMIPref™, but relegated to the Scraps index on credit concerns.

Leave a Reply

You must be logged in to post a comment.