S&P rates TG Natural, notes B+

S&P said it assigned B+ ratings to TG Natural Resources LLC and the $700 million of senior unsecured notes it assumed after it bought Rockcliff Energy II LLC for $2.7 billion, including the assumption of debt. The agency revised the recovery rating on the notes to 3 from 2, indicating meaningful (50%-70%; rounded estimate: 55%) recovery if TGNR defaults, reflecting additional priority debt in the capital structure. The outlook is stable.

“We assigned a B+ issuer credit rating to TG Natural Resources, reflecting the company's modest proved reserves and production, modest percentage of proved developed reserves (46%), 95% natural gas concentration, and lack of geographic diversification.

“Additionally, the rating reflects the relatively high initial draw of 56% (about $755 million) on the reserve-based lending (RBL) facility, as well as TGNR's status as a majority-owned (93% post-transaction) subsidiary of AA- rated Tokyo Gas Co. Ltd. Our rating on TGNR also incorporates our assessment of the company's low-cost structure, modest leverage, and healthy hedging program,” S&P said in a press release.

The stable outlook mirrors the position that TGNR will employ its new assets, maintain its drilling program and use free cash flow to lower debt. “Over the next two years, we project funds from operations (FFO)/debt of 50%-60% and debt to EBITDA of 1.5x-2x,” S&P said.

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