Moody's rates MEG Energy loans Ba3

Moody's Investors Service said it assigned a Ba3 rating to MEG Energy Corp.'s pending $750 million senior secured loan facility, to be activated upon MEG raising at least C$200 million in new common equity. The facility includes a $50 million three-year revolving credit and a $700 million seven-year term loan B. The outlook is stable.

MEG is early in the phase 1 and 2 C$1.264 billion development of a potentially major steam-assisted gravity drainage oil sands project in the Athabasca Oil Sands of Alberta.

Moody's said the ratings are supported by a three-year interest reserve account; a very substantial equity cushion; a very large bitumen resource base; comparatively low exploitation drilling risk on a large established reserve base; management's deep cumulative oil sands development, operating and marketing experience; steam-assisted gravity drainage technology that is more than seven years into commercial status after 20 years of pilot project experience in the region and the potential strategic interest in the project by major producers.

The ratings are restrained by substantial leverage and heavy front-end capital outlays; exposure to highly cyclical crude oil prices; inherent project cost, delay and start-up risk; inherent risk of reservoir quality and homogeneity across MEG's acreage; and expected leveraged total unit costs that may render increasingly unattractive cash flow coverage, the agency said.

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