{"id":49749,"date":"2018-10-01T21:26:00","date_gmt":"2018-10-02T01:26:00","guid":{"rendered":"https:\/\/prefblog.com\/?p=49749"},"modified":"2025-08-25T21:28:01","modified_gmt":"2025-08-26T01:28:01","slug":"hse-on-credit-watch-negative-by-sp","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=49749","title":{"rendered":"HSE on Credit Watch Negative by S&#038;P"},"content":{"rendered":"<p>Husky Energy Inc.<a href=\"http:\/\/huskyenergy.com\/news\/release.asp?release_id=2206357\">has announced<\/a>:<\/p>\n<blockquote>\n<p>a proposal to acquire all of the outstanding shares of MEG Energy Corp. (TSX:MEG) (\u201cMEG\u201d) for implied total equity consideration of approximately $3.3 billion. This proposal values MEG at an implied total enterprise value of $6.4 billion, including the assumption of approximately $3.1 billion of net debt.<\/p>\n<\/blockquote>\n<p>This caused <a href=\"https:\/\/www.standardandpoors.com\/en_US\/web\/guest\/article\/-\/view\/type\/HTML\/id\/2107760\">immediate reaction by Standard &#038; Poor&#8217;s<\/a>:<\/p>\n<blockquote>\n<ul>\n<li>\u2022We are placing our ratings on Husky Energy Inc. on CreditWatch with negative implications, following its announced unsolicited bid to acquire oil sands bitumen producer, MEG Energy Corp.\n<li>\u2022We are also placing our &#8216;BBB-&#8216; global scale and &#8216;P-2(Low)&#8217; Canada scale preferred share ratings on CreditWatch with negative implications, as we would lower them to &#8216;BB+&#8217; and &#8216;P-3(High)&#8217;, respectively, concurrent with a downgrade on the company to &#8216;BBB&#8217;.\n<li>\u2022We are assuming Husky&#8217;s major shareholder will retain its majority ownership in the company, so we expect the one-notch uplift to its rating, which is supported by this ownership, should remain in effect.\n<li>\u2022The negative CreditWatch reflects the potential deterioration of Husky&#8217;s cash flow and leverage metrics, with the addition of MEG&#8217;s existing C$3.6 billion of debt (at June 30, 2018), and the resulting deterioration of the company&#8217;s financial risk profile, which could lead to a downgrade.<\/ul>\n<p><b>&#8230;<\/b><br \/>The CreditWatch is based on the potential deterioration of Husky&#8217;s financial risk profile, if the company acquires MEG. The C$3.6 billion of MEG&#8217;s debt being assumed will materially weaken Husky&#8217;s pro forma cash flow and leverage metrics, and we believe the company&#8217;s financial risk profile might deteriorate by one category from our current weighted-average estimate for the 2018-2020 forecast period. At this time, we believe Husky&#8217;s major shareholder should retain its ownership position in the company, which would support the continued one-notch uplift to the credit rating. As a result, we believe the rating downside should be limited to one notch.<br \/><b>&#8230;<\/b><br \/>We expect to resolve the CreditWatch placement when the transaction closes.<br \/>\nThis should occur in early 2019.<\/p>\n<\/blockquote>\n<p>S&#038;P currently rates the preferreds as P-2(low).<\/p>\n<p>DBRS <a href=\"https:\/\/www.dbrs.com\/research\/333510\/dbrs-comments-on-husky-energys-unsolicited-offer-to-acquire-meg-energy-corp-for-dollar64-billion\">commented<\/a>:<\/p>\n<blockquote>\n<p>Nevertheless, DBRS notes that if Husky\u2019s offer is successful in its current form, the addition of MEG\u2019s assets would be mildly positive for Husky\u2019s business risk profile. The inclusion of MEG\u2019s assets (1) adds to Husky\u2019s size, (2) improves the Company\u2019s proven reserve life index, (3) complements Husky\u2019s other thermal oil developments in Western Canada and (4) enhances Husky\u2019s heavy oil integration plans. Tempering the improvement in the business risk profile is a higher level of asset concentration in Western Canada and a higher proportion of thermal oil in the Company\u2019s production mix.<\/p>\n<p>DBRS notes that Husky\u2019s credit metrics (assuming Husky\u2019s offer is successful in its current form) are modestly negatively affected initially due to the sizable amount of MEG debt that the Company would incur. On a pro forma basis (last 12 months ended June 30, 2018), Husky\u2019s lease-adjusted debt-to-cash flow ratio rises from approximately 1.6 times (x) to 2.3x (outside the \u201cA\u201d range). However, Husky has noted that approximately $200 million in synergies could be realized annually from the acquisition of the MEG assets. Also, the combined entity is expected to generate material free cash flow (cash flow after capital spending and dividends) that can be deployed to reducing net debt and financial leverage. The Company anticipates a net debt-to-cash flow ratio of the combined entity (based on current strip pricing in 2019 for West Texas Intermediate oil of USD 70.50\/bbl and a heavy light oil differential in Western Canada of USD 26.26\/bbl) to be approximately 1.0x in 2019.<\/p>\n<\/blockquote>\n<p>DBRS <a href=\"https:\/\/www.dbrs.com\/research\/319068\/dbrs-confirms-issuer-rating-of-husky-energy-inc-at-a-low-stable-trend\">confirmed the preferreds at Pfd-2(low) on 2017-11-14<\/a>.<\/p>\n<p>Affected issues are HSE.PR.A, HSE.PR.B, HSE.PR.C, HSE.PR.E and HSE.PR.G.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Husky Energy Inc.has announced: a proposal to acquire all of the outstanding shares of MEG Energy Corp. (TSX:MEG) (\u201cMEG\u201d) for implied total equity consideration of approximately $3.3 billion. This proposal values MEG at an implied &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13],"tags":[],"class_list":["post-49749","post","type-post","status-publish","format-standard","hentry","category-issue-comments"],"_links":{"self":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/49749","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=49749"}],"version-history":[{"count":1,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/49749\/revisions"}],"predecessor-version":[{"id":49750,"href":"https:\/\/prefblog.com\/index.php?rest_route=\/wp\/v2\/posts\/49749\/revisions\/49750"}],"wp:attachment":[{"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=49749"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=49749"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/prefblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=49749"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}