Nueva York.- Los ingresos de los hasta US$500 millones que buscará levantar SierraCol Energy Limited (de The Carlyle Group Inc.) a través de bonos senior no garantizados con vencimiento en 2028, se utilizarán para refinanciar la deuda existente, pagar dividendos y para fines corporativos generales.
Así lo reveló hoy Moody’s Investors Service al ssignar una calificación de familia corporativa B1 a SierraCol Energy Limited y una calificación de B1 a SierraCol Energy Andina, LLC ( emisora de los bonos y subsidiaria de propiedad total de SierraCol).
El 18 de diciembre de 2020 SierraCol Energy (SierraCol), perteneciente al Grupo Carlyle, asumió las operaciones e intereses sobre los activos adquiridos en octubre a Occidental Petroleum Corporation, que vendió todos sus activos en tierra en Colombia, que en la actualidad aportan una producción, conjuntamente con sus socios, de alrededor de 85.000 barriles de petróleo por día.
Las calificaciones de Moody’s se basan en el cierre exitoso de la transacción propuesta y en la documentación preliminar revisada por Moody’s.
Más temprano, Fitch Ratings asignó un ‘B + /’ RR4 ‘a la emisión propuesta de bonos y signó por primera vez Calificaciones de Incumplimiento de Emisor (IDR) de largo plazo en moneda local y extranjera de ‘B +’ a SierraCol Energy Limited. El outlook es estable.
La perspectiva de las calificaciones es estable, dijo ahora Moody’s Investors Service. Esta es la primera vez que Moody’s califica a SierraCol.
Calificaciones:
..Emisor: SierraCol Energy Andina, LLC
…. Gtd Bono / Obligación Regular No Garantizado Senior, Asignado B1
..Emisor: SierraCol Energy Limited
…. Calificación de familia corporativa, asignada B1
Acciones de Outlook:
..Emisor: SierraCol Energy Andina, LLC
…. Outlook, estable
..Emisor: SierraCol Energy Limited
…. Outlook, estable
Moody’s assigns first time B1 rating to SierraCol; stable outlook
New York, June 08, 2021 –Moody’s Investors Service (Moody’s) assigned a B1 corporate family rating to SierraCol Energy Limited (SierraCol) and a B1 rating to SierraCol Energy Andina, LLC’s (SierraCol Andina or the issuer, SierraCol’s wholly owned subsidiary) proposed up to $500 million guaranteed senior unsecured notes due 2028.
Proceeds from the notes will be used to refinance existing debt, pay dividends and for general corporate purposes. The ratings are based the successful closing of the proposed transaction and on preliminary documentation revised by Moody’s.
The outlook on the ratings is stable. This is the first time Moody’s rates SierraCol.
Assignments:
..Issuer: SierraCol Energy Andina, LLC
….Gtd Senior Unsecured Regular Bond/Debenture, Assigned B1
..Issuer: SierraCol Energy Limited
…. Corporate Family Rating, Assigned B1
Outlook Actions:
..Issuer: SierraCol Energy Andina, LLC
….Outlook, Stable
..Issuer: SierraCol Energy Limited
….Outlook, Stable
RATINGS RATIONALE
The B1 ratings on SierraCol and on SierraCol Andina’s proposed notes are based on SierraCol’s small asset base and size of crude oil production; high operating risk due to geographic concentration and the mature nature of its oil and gas assets in Colombia; and event risk related to possible acquisitions. Simultaneously, the ratings are supported by SierraCol’s high operating margins, which derives in low debt leverage and high interest coverage ratios for the B1 rating category; its strong management team; and the solid sponsorship from The Carlyle Group (Carlyle), through its international energy fund Carlyle International Energy Partners (CIEP).
SierraCol is an exploration and production (E&P) company with conventional onshore oil assets in the Llanos, Middle Magdalena and Putumayo basins of Colombia. In December 2020 SierraCol’s proved reserves amounted to 88 million barrels of oil and in 2020 the company’s net production averaged 38,000 barrels per day, of which 100% was crude oil. SierraCol’s reserves and production are small compared to global E&P companies, although a reserve life of 6.5 years is adequate. It is positive that SierraCol’s management team is strong, with significant operational experience in Colombia and overseas; management was retained after the acquisition of the Colombian assets from Occidental Petroleum Corporation (Oxy, Ba2 negative) in 2020.
SierraCol’s Moody’s-adjusted Ebitda margin was strong at an average of 66% in 2020, supported by high net backs for the crude oil and low transportation costs. About 95% of SierraCol’s production is sold to Ecopetrol S.A. (Baa3 stable) and its refineries in Colombia, which supports cash flow visibility. The solid EBITDA margin will help SierraCol maintain low debt leverage at above 30% Retained Cash Flow (RCF: cash from operations before working capital requirements less dividends)/debt in 2022-23 and high interest coverage at well over 12 times in the same period.
The company’s operating risk is high: all its production is concentrated in Colombia, and around 60% of production is close to the border with Venezuela, which increases operating risk given the high propensity of political instability in that area. Moreover, the company bases its production on secondary recovery and water flows, which tend to be expensive. However, SierraCol inherited solid operating practices from Oxy, including safety and assets protection measures.
SierraCol’s business strategy is based on organic growth, by converting 3P reserves into 2P reserves, and sustaining annual reserve replacement rates at above 105%, which is acceptable. But it will also continue to pursue inorganic growth, by acquiring small- and medium-sized assets as well as transformative acquisitions, which raises event risk.
Proforma for the proposed transaction, SierraCol has good liquidity: in March 2021 the company had $120 million in cash and equivalents and Moody’s expects it to generate approximately $300 million in operating cash in 2021. These cash sources will be enough to cover capital spending, operating expenses, planned dividends and other obligations in the period. The company’s financial policies include a minimum amount of cash on hands of $40 million, besides $80 million in revolvers. Moody’s understands that SierraCol will contract a $80 million five-year committed revolving credit facility that will support its liquidity position. In addition, the company has alternate liquidity sources since its asset base is largely unencumbered. SierraCol has capital investment flexibility since about 80% of its capex is discretionary because it focuses on drilling options close to its existing infrastructure, which requires limited incremental capital.
The stable outlook on the ratings is based on our view that SierraCol’s credit profile will not materially change in the next 12 to 18 months given expectations of relatively stable production volumes and oil and gas prices. Moody’s understand that SierraCol’s maximum net debt/EBbitda target ratio is 1.5x, including in times of asset acquisitions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to a rating upgrade include a production increase to between 50,000 and 100,000 boepd, with minimal deterioration in financial metrics; leveraged full-cycle ratio, which measures an oil company’s ability to generate cash after operating, financial and reserve replacement costs, consistently above 2.5x; E&P debt/proved developed reserves below $8.0; and no deterioration in SierraCol’s liquidity position. In turn, factors that could lead to a downgrade include RCF to total debt ratio below 25%; interest coverage, measured as Ebitda/interest expense, below 4.0x; a significant amount of secured debt in the company’s capital structure; a material change in the company’s financial policy that leads to a deterioration of its credit risk, most probably after a major acquisition; or deterioration in the company’s liquidity situation.
Governance considerations:
Since SierraCol was recently formed, consolidated financial statements for the holding company are not yet available. Audited financial statements are available for 2019 and 2020 only and are combined for the three largest operating subsidiaries of SierraCol, that is, SierraCol Energy Andina, LLC (the issuer), SierraCol Energy Arauca, LLC and SierraCol Energy Condor, LLC, which in total account for 100% of SierraCol’s revenues. SierraCol is obliged to provide audited consolidated financial statements to its investors starting with full year 2021.
The principal methodology used in these ratings was Independent Exploration and Production Industry published in May 2017 and available at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808 .
Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
SierraCol is an E&P company whose key assets are Cano Limon («CLM») and La Cira Infantas («LCI»), two of Colombia’s most prolific and long-lived fields in the country. In turn, Carlyle is one of the largest asset managers globally, with over $260 billion in total assets under management. Carlyle’s Ciep has $7 billion in assets under management, and has a mandate to invest exclusively in the energy value chain (upstream, midstream, and downstream) in geographies outside North America. CIEP’s strategy is built upon leveraging in-house know-how and expertise from other similar transactions.