HSE: Credit Outlook Improves To ‘Stable’ Says S&P

Standard & Poor’s has announced:

  • •We are revising our outlook on Husky Energy Inc. to stable from negative.
  • •We are also affirming our ratings on the company, including our ‘BBB+’ long-term corporate credit rating (CCR) on Husky.
  • •The outlook revision reflects the company’s successful completion of asset sales to date, which have strengthened cash flow metrics (on a net debt basis) above our forecast estimates from October 2015.
  • •The ‘BBB+’ CCR reflects a ‘bbb’ initial anchor score, and the application of a one-notch enhancement due to our assessment of Husky as a moderately strategic holding for its major shareholder.
  • •We are also removing the positive CRA modifier, because the factors supporting its initial application have been satisfied.

We would lower the rating to ‘BBB’ if the company’s financial risk profile deteriorates materially from our current estimates. Specifically, we would lower the rating if Husky’s three-year, weighted-average FFO-to-debt ratio fell below 30%, and we believed it would remain below this threshold consistently. FFO-to-debt ratios below this level would neither support a ‘bbb’ anchor nor the application of a positive CRA modifier.

Based on our current assessment of Husky’s business risk profile, which we do not expect to strengthen during our 24-month outlook period, we do not believe the company’s financial risk profile could strengthen to the level necessary to support an ‘A-‘ rating. To support that rating, Husky’s three-year, weighted-average FFO-to-debt ratio would have to strengthen and remain above 60%, and the company would need to consistently generate positive FOCF such that its FOCF-to-debt ratio would remain above 40%. Due to the oil and gas industry’s capital-intensive nature, we do not believe an oil and gas company could generate and sustain positive FOCF at these levels, so an upgrade to ‘A-‘ is not likely during our outlook period.

Affected issues are HSE.PR.A, HSE.PR.B, HSE.PR.C, HSE.PR.E and HSE.PR.G.

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