S&P rates Obsidian B-, notes B

S&P said it preliminarily assigned a B- rating to Obsidian Energy Ltd. and preliminary B issue with 2 recovery ratings to its planned C$125 million of senior unsecured notes. Obsidian also proposes to replace its C$340.7 million credit facility with a new C$175 million credit facility. The facility was 85% drawn on June 30.

“The ratings reflect Obsidian's relatively small scale of production offset by a diversified product mix and low decline rate. Our ratings also incorporate projected strength in credit measures, with an adjusted funds from operations (FFO)-to-debt ratio averaging 145% in 2022 and 2023,” the agency said in a press release.

“We believe the proposed transactions, if completed, alleviate the near-term refinancing risks, as both the existing notes and credit facility are due in November 2022. In addition, we believe the company should have sufficient liquidity under the new credit facility at the end of 2022,” S&P said.

The outlook is stable, which reflects the position that Obsidian will deliver robust credit measures over the next two years helped by favorable commodity prices. “Specifically, we project the company will generate an adjusted FFO-to-debt ratio averaging 145% in 2022 and 2023,” the agency said.

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