Moody’s lowers SM Energy

Moody’s Investors Service said it downgraded SM Energy Co.’s corporate family rating to B3 from B1, probability of default rating to B3-PD from B1-PD and senior unsecured rating to Caa1 from B2. The speculative grade liquidity rating was downgraded to SGL-3 from SGL-2.

“The downgrade reflects SM’s high debt leverage at a time when very low commodity prices are likely to lead to dramatically reduced cash flow on its non-hedged production, particularly in 2021 when the company’s hedged volumes and pricing drop considerably. The weakened hedge position after 2020 raises the possibility the company may breach its leverage covenant in early 2021 if commodity prices remain very low,” Moody’s said in a press release.

Moody’s’ said the company’s ample liquidity and the distressed trading levels of its unsecured debt may motivate it to repurchase its notes at deeply discounted prices in a volume Moody’s would deem a distressed exchange.

Moody’s revised the outlook to negative.

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