09 September 2016, Lagos — Fitch Ratings Agency has downgraded Nigeria –based Seven Energy International Limited Issuer Default Rating, IDR to “CC” from “B- ‘’
Fitch also downgraded the senior secured rating of wholly-owned subsidiary Seven Energy Finance Limited’s 10.25 per cent $ 300m secured notes due 2021 to ‘C’ from ‘CCC’.
According to a statement from Fitch Rating Agency, the Recovery Rating on the notes remains at ‘RR6’. The IDR downgrade reflects our re-assessment of the significant ongoing liquidity, security and execution risks that Seven Energy continues to face. While, the company is making progress in its negotiations with lenders to defer repayments under the USD377m Accugas IV facility, which if and when completed should improve its short-term liquidity, liquidity over the medium-term is likely to remain very tight and will remain largely determined by external developments.”
The Agency further stressed that the external developments include a ramp-up in natural gas sales to around 150 million cubic feet per day (MMcfpd) by end-2016, from 95MMcfpd in first half 2016 , 1H16; the Forcados oil terminal re-opening in fourth quarter, 2016, 4Q16 following its closure since February 2016; and a reduction of the oil under-lift position under the Strategic Alliance Agreement (SAA) with Nigerian Petroleum Development Company (NPDC) that reached USD312m as at 30 June 2016.
According to the Agency, “If any of these developments fail to materialise by end-2016, we believe that Seven Energy may be forced to start re-negotiations with all its creditors, including the bondholders.”
Nigeria’s onshore-based Seven Energy is a small oil and gas production and gas processing, distribution and marketing company with a complex structure. The company’s oil business in the Nigeria’s North West has been hampered by NPDC’s weak financial position and security issues leading to the prolonged shutdown at the Forcados oil terminal. In 1H16, Seven Energy’s EBITDAX was $ 66milion, and its free cash flow (FCF) was a negative $81million. Seven Energy’s equity-raising of $ 100million in February 2016 allowed the company to continue making interest and principal payments in 1H16 of $ 50million and USD14million, respectively.