S&P gives Aethon B, notes B-

S&P said it assigned Aethon United BR LP a B issuer rating and its planned $700 million of senior unsecured notes a B- rating with a 2 recovery rating. The recovery rating of 2 indicates expectations for substantial (70%-90%; rounded estimate: 85%) recovery of principal in the event of a default.

“The ratings on Aethon reflect the company’s small proved reserve and production base relative to peers, its single basin concentration in the Haynesville Shale and focus on natural gas production (99% dry gas), a high proportion (65%) of proved undeveloped reserves (PUDs) that will require significant spending to develop, and our expectation for negative free cash flow over the next two years,” S&P said in a press release.

Aethon plans to use the proceeds to refinance its $550 million privately placed second-lien term loan and partially repay revolver borrowings.

The outlook is stable. “The stable outlook reflects our view that Aethon will maintain healthy financial measures and adequate liquidity over the next 12–18 months until it generates consistent positive free cash flow,” S&P said.

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