S&P boosts EnQuest notes to B

S&P said it raised EnQuest plc’s unsecured notes’ rating to B from B-, revised the outlook to positive from stable and affirmed the B- issuer rating.

EnQuest’s fewer priority liabilities and increased an estimate of reserve value account for the upgrade, the agency said.

“Management has focused on reducing debt, a strategy supported by the amortizing reserve-based loan (RBL), which requires that EnQuest uses excess cash to reduce any drawings. We therefore expect the company to continue to reduce gross debt, in line with the debt documentation. Our adjusted gross debt will decline as the RBL amortizes, and liabilities such as leases and contingent considerations for acquisitions are repaid. The company has a public net leverage target of 0.5x (as defined by EnQuest); this was 1.6x at end-2021,” S&P said in a press release.

The agency said it estimates EnQuest will produce EBITDA of $950 million-$1.05 billion in 2022, resulting in strong FOCF of $525 million-$625 million. “Gross debt will continue to fall as the RBL amortizes. This should translate into FFO to debt of 29%-34% and debt to EBITDA of 2.5x-2.9x in 2022, which we see as strong for the current rating.”

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