Moody’s: Synergy notes Caa2

Moody's Investors Service said it assigned first-time ratings to Synergy Resources Corp., including a B3 corporate family rating, B3-PD probability of default rating and Caa2 (LGD 5) senior unsecured rating due 2021 on its $80 million dollar notes.

Moody's also said it assigned an SGL-3 speculative grade liquidity rating.

The outlook is stable.

Synergy has accumulated a solid acreage position in the core of the Wattenberg Field in the Denver-Julesburg Basin, primarily through equity funded acquisitions, Moody’s said.

This acreage position provides the company with a runway of drilling inventory that will contribute to significant growth in production and reserves, albeit through a debt-financed drilling program that will require significant capital, the agency said.

Due to this capital requirement, Synergy is expected to outspend cash flow through 2018, Moody’s explained.

The ratings reflect the limited scale of the company's upstream operations, its concentration as a pure play Wattenberg Field operator and aggressive drilling program that will produce negative free cash flow through 2018, the agency said.

The ratings also consider an expectation that the company's organic growth through 2018 will be partially debt-financed on the company's revolving credit facility and potentially through subsequent debt issuances, Moody’s said.

The ratings are supported by the company's high quality contiguous acreage in the core of the Wattenberg field and management's deep understanding of and experience in the basin, the agency said.

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