By Marcela Duenas & Fabiola Ortiz | Standard and Poor’s
MEXICO CITY — S&P Global Ratings has raised its corporate credit rating on Petroleos de Venezuela S.A. (PDVSA) to ‘CCC-‘ from ‘SD’. The outlook is negative.
At the same time, we raised our issue-level ratings on the remaining outstanding amount of the company’s 5.25% senior unsecured notes due April 2017 and on 8.5% senior unsecured notes due November 2017 to ‘CCC-‘ from ‘D’.
We also lowered the issue-level rating on the company’s senior unsecured debt to ‘CCC-‘ from ‘CCC’.
The upgrade follows the exchange of PDVSA’s outstanding 5.25% and 8.5% senior unsecured notes. The exchange extends the maturity date of the company’s debt until 2020, which improved its financial flexibility. However, PDVSA still has amortization of about $1.1 billion in November 2016 on its 5.25% senior unsecured notes and amortization of $2.0 billion in April 2017, and we believe that an exchange on these notes is likely. The corporate credit rating on the company reflects that a default, distressed exchange, or redemption appears to be inevitable in the next six months, absent unanticipated significantly favorable changes in the company’s circumstances.
The company’s business risk profile continues to reflect the government’s heavy intervention and PDVSA’s difficulty to increase production. It also considers that the company operates in a country that continues to suffer from an economic contraction, very high inflation, and increasing scarcities, largely resulting from stringent import restrictions. Additionally, lower oil prices have shrunk PDVSA’s profitability. For 2015, the company reported an EBITDA of about $7.8 billion, which represents an EBITDA shortfall of about 70% when compared to 2014. The business risk profile also considers the company’s leading position as an integrated oil company with large proven reserves of around 300 billion of barrels.
The ratings also reflect a continuing rise in PDVSA’s debt, the challenges to finance the very high capital expenditures needed to develop reserves and increase production, and considerable contributions to the government’s social programs. They also reflect the company’s projected debt to EBITDA of about 10x and a negative funds from operations (FFO) to debt in 2016 and 8.8x in 2017.
After Rating PDVSA “Default”, S&P Ups Venezuela’s State Oil Company to CCC-
Venezuela-based oil and gas company PDVSA has completed a debt exchange offer, whereby it exchanged 31.4% of its $3.0 billion 5.25% senior unsecured notes due 2017 and 45.30% of its $4.1 billion 8.5% senior unsecured notes due 2017 for new 8.50% $3.3 billion senior secured notes due 2020. “We’re raising our corporate credit rating on PDVSA to ‘CCC-‘ from ‘SD’,” says Standard and Poor’s. “At the same time, we’re raising our issue-level ratings on the remaining outstanding amount of the company’s 5.25% senior unsecured notes and on its 8.5% senior unsecured notes to ‘CCC-‘ from ‘D’. The negative outlook on PDVSA reflects the high debt and upcoming maturities in 2017 that could lead to another distressed exchange of the company’s debt obligations in the next six months.”