Moody's changes WPX to negative, rates notes Ba1, might upgrade RKI

Moody's Investors Service said it changed WPX Energy, Inc.'s outlook to negative from stable, assigned Ba1 (LGD4) ratings to its senior notes due 2020 and 2023, lowered its speculative grade liquidity rating to SGL-3 from SGL-2 and affirmed its corporate family rating at Ba1, probability of default rating at Ba1-PD and senior notes due 2017, 2022 and 2024 at Ba1 (LGD4).

The agency also placed RKI Exploration & Production, LLC’s B2 corporate family rating, its B2-PD probability of default rating and the B3 (LGD5) rating on its senior notes due 2021 under review for upgrade. Its speculative grade liquidity rating is unchanged at SGL-3.

WPX plans to acquire RKI in a transaction valued at $2.75 billion, including $400 million of assumed debt at RKI. The proposed notes will be used along with about $300 million of existing cash, equity valued at $470 million issued to the seller, new public equity and revolver borrowings to fund the RKI purchase.

The acquisition of RKI will improve the diversity and quality of WPX's asset base, the agency said, but the negative outlook reflects Moody’s expectation that WPX's leverage and retained cash flow will be weak until it further develops the acquired assets.

Moody’s said WPX's Ba1 corporate family rating is supported by its large proved reserve and production scale and low financial leverage relative to similarly rated peers.

At the same time, the agency said the rating is restrained by WPX's concentration in natural gas, which results in cash margins and returns lower than peers.

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