Moody’s rates Gavilan CFR B3, loan Caa1

Moody's Investors Service said it assigned Gavilan Resources, LLC a B3 corporate family rating and a Caa1 rating to its proposed $350 million senior secured second-lien term loan facility due 2024.

The agency also assigned an SGL-3 speculative grade liquidity rating to indicate adequate liquidity through 2017.

The outlook is stable.

On Jan. 12, Gavilan and Sanchez Energy Corp. (B3 stable) agreed to jointly purchase Anadarko Petroleum Corp.’s (Ba1 stable) Western Eagle Ford acreage, including 169 million boe of proved reserves net to Gavilan's interest, for about $2.3 billion.

Proceeds from the proposed senior secured second-lien term loan facility, along with borrowings under its revolving credit facility and a roughly $700 million equity contribution from funds managed by Blackstone Energy Partners (unrated), will be used to fund Gavilan's estimated $1.13 billion portion of the acquisition.

"The acquisition and partnership with Sanchez provides Gavilan substantial opportunity to grow its production and reserves. While Gavilan is a start-up and will not operate its assets, the company's low leverage and strong commodity price hedging profile should allow it to fund much of its future development using internally generated cash flow with limited reliance on revolver borrowings through 2018," Moody's vice president, senior analyst John Thieroff said in a news release.

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