PrefBlog

Standard & Poor’s has announced:

• •We expect Talisman Energy Inc.’s operating performance, specifically its production and cost profile, to show limited improvement in the next 18-24 months, constraining any significant cash-flow growth.
• •At the same time, we expect Talisman to significantly outspend internally generated cash flow through 2015. Even if the company meets its US$2 billion asset sale target in the next 12-18 months, we do not think its credit profile is commensurate with that of its ‘BBB’ rated peers.
• •As a result, we are lowering our long-term corporate credit and senior unsecured debt ratings on Talisman to ‘BBB-‘ from ‘BBB’.
• •We are also lowering our global scale rating on its preferred stock to ‘BB’ from ‘BB+’ and its Canada scale rating on the preferred stock to ‘P-3’ from ‘P-3 (High)’.
• •The stable outlook reflects our view that Talisman’s cash flow from its increasing liquids production combined with any asset sales will allow the company to maintain its funds from operations-to-debt at more than 30% through 2015.

Standard & Poor’s Ratings Services today said it lowered its long-term corporate credit rating on Calgary, Alta.-based Talisman Energy Inc., and its senior unsecured debt rating ‘BBB-‘ from ‘BBB’. At the same time, Standard & Poor’s lowered its global scale rating on its preferred stock to ‘BB’ from ‘BB+’ and its Canada scale rating on the stock to ‘P-3’ from ‘P-3 (High)’. Standard & Poor’s also affirmed its ‘A-3’ short-term and commercial paper ratings on Talisman. The outlook is
stable.
…
The stable outlook reflects Standard & Poor’s view that Talisman will continue to focus on improving its high-netback liquids production, focus on operational performance, and maintain balance-sheet strength at current levels. The outlook also reflects our expectation that the company’s FFO-to-net debt will remain in the 30%-40% range.

For us to revise the outlook to positive, we would expect Talisman’s business risk profile to improve substantially — for example, if it were to improve its operating costs in line with those of other higher rated E&P peers and production netbacks sustainably. We may also consider a positive action if we expect the company to improve its FFO-to-net adjusted debt to above 40% due to improving operating performance. Better credit metrics due to significant asset sales alone would not be sufficient for a positive rating action.

If Talisman’s capital expenditures accelerate without a clear path for production growth, such that credit measures rise above 3.0x for debt to EBITDA and fall below 30% for FFO to debt, we would consider a negative rating action. Also, material declines in production, realized commodity prices, or deterioration in operating efficiency could lead to a downgrade.

TLM.PR.A is a FixedReset 4.20%+277, announced 2011-12-5 and closing 2011-12-14 to market disdain. The underwriters needed to slash prices to clear their inventory. It was downgraded to Pfd-3 [Trend Negative] by DBRS last September.

The issue is tracked by HIMIPref™ but relegated to the Scraps index on credit concerns.

Update, 2014-10-14: Talisman has also been downgraded by Moody’s, but they don’t rate the preferreds:

The Baa3 senior unsecured rating reflects Talisman’s sizable reserves, production and valuable other assets, tempered by the execution risks of an ongoing major shift in strategy and capital spending and dividends that outstrip internal cash flow generation. While production has declined due largely to asset sales, we expect modest production growth in 2015 from existing assets given the use of development capital in Southeast Asia, the Eagle Ford and Columbia. However, we expect an overall decline in reserves and production, cash flow, debt and negative free cash flow over the next 12 to 18 months as asset sales take place. When the strategic re-positioning is complete, we believe that Talisman will be positioned as a Baa3-rated company, with internally generated cash flow that can largely fund its negative free cash flow in the North Sea and an asset base that can provide growth opportunities and improvements in Talisman’s very high finding and development costs and very weak leveraged full-cycle ratio.

This entry was posted on Thursday, October 9th, 2014 at 6:48 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.