S&P rates MEG Energy loans BB

Standard & Poor's said it assigned a B+ long-term corporate credit rating to MEG Energy Corp. and a BB rating with a recovery rating of 1 to the company's proposed bank loan facilities: a seven-year $700 million secured term loan B and a three-year $50 million secured revolving credit facility. The outlook is stable.

S&P said the ratings on MEG reflect the company's lack of internal cash flow generation, as it is currently in the precompletion phase of its Christina Lake oil sands project; the risk of cost increases on construction of its project; its exposure to heavy oil differentials once production begins and its high leverage. The agency predicted that total debt to capital will be 57% after the closing of the loan.

Somewhat mitigating these constraints are the above-average reserve life index of MEG's oil sands leases and the expected stable production profile with negligible finding costs associated with oil sands extraction, the agency said.

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