S&P puts Petrohawk on positive watch, KCS on negative watch

Standard & Poor's said it placed Petrohawk Energy Corp.'s B- corporate credit and CCC senior unsecured debt ratings on CreditWatch with positive implications and KCS Energy Inc.'s B corporate credit and B- senior unsecured debt ratings on CreditWatch with negative implications following Petrohawk's announcement that it has entered into a definitive agreement with KCS to merge the two companies for $1.6 billion.

Pro forma for the transaction, Petrohawk will have $1.3 billion in debt outstanding.

S&P said the CreditWatch listing for Petrohawk reflects the likelihood that the ratings could be either raised or affirmed in the near term following an assessment of the merged entity's likely credit profile. The ratings on KCS will be equalized with those of Petrohawk.

The transaction price implies a high purchase price of over $4.00 per thousand cubic feet equivalent of proved reserves. As a result, the agency estimated pro forma debt leverage to be "aggressive" at nearly $8 per barrel on a total proved basis.

Nevertheless, S&P said Petrohawk's business risk profile should benefit from the transaction due to additional scale, increased daily production volumes and a more concentrated position in several onshore basins.

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