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GMX Resources Inc. Message Board

  • sleestack76 sleestack76 Feb 2, 2011 3:28 PM Flag

    Moody Rating

    The following is a press release from Moody's Investors Service :

    $200 million of rated debt affected

    New York , February 02, 2011 -- Moody's Investors Service assigned a Caa2
    rating to GMX Resources Inc.'s (GMX) proposed $200 million senior
    unsecured notes due 2019. Moody's also assigned a first time Caa1
    Corporate Family Rating (CFR) and SGL-3 Speculative Grade Liquidity (SGL)
    rating to GMX. Net proceeds from the notes offering and concurrent common
    equity offering will be used to fund an offer to purchase $50 million of
    the company's 5% convertible senior notes, repay all outstanding revolver
    debt, fund the $68.3 million cash portion of the purchase price of its
    pending Bakken and Niobrara acquisitions, and fund a portion of 2011
    capital spending. The rating outlook is stable.

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    • part 2


      "GMX's Caa1 CFR reflects its small size, limited diversification,
      production that is 97% natural gas in a low gas price environment, high
      leverage on production and reserves, and the risks inherent in developing
      its newly acquired oil focused Bakken and Niobrara acreage while
      outspending cash flow," commented Jonathan Kalmanoff , Moody's Analyst.
      "The rating also considers the potential for improvement in both
      profitability and diversification if GMX is successful in developing its
      newly acquired acreage, the pre-funding of the majority of 2011 capital
      spending through both debt and equity offerings, a lack of required
      drilling to hold acreage in the company's East Texas properties, and
      hedges in place which add support to realized prices for gas production
      through 2012."

      At December 31, 2010 , pro-forma, debt / average daily production was
      $42,623 /boe and debt / proven developed reserves was $14.94 /boe. In
      assessing leverage, Moody's views 75% of GMX's 9.25% Series B Cumulative
      Preferred Stock as debt.

      The SGL-3 liquidity rating reflects adequate liquidity through 2011. At
      the closing of its debt and equity offerings, the company will have $60
      million of availability under its undrawn borrowing base credit facility
      and $107 million of cash. Capital expenditures are expected to exceed
      cash flow during 2011. The credit facility, which is being amended
      concurrently with the notes offering, has a $100 million commitment with
      an initial borrowing base of $60 million . The borrowing base is
      re-determined semi-annually with the next re-determination scheduled for
      October 1, 2011 . Financial covenants under the facility are Senior
      Secured Debt / EBITDA of not more than 2.5x, EBITDA / interest of not
      less than 2.5x, and a current ratio of not less than 1.0x. There are no
      debt maturities until 2013. Substantially all of GMX's oil and gas
      reserves are pledged as security under the credit facility which limits
      the extent to which asset sales could provide a source of additional
      liquidity; however, the company would be able to sell drilling rig and
      midstream assets held in its subsidiaries to raise additional liquidity
      if needed.

      The Caa2 senior unsecured note rating reflects both the overall
      probability of default of GMX, to which Moody's assigns a PDR of Caa1,
      and a loss given default of LGD4-58%. The size of the senior secured
      revolver's potential priority claim relative to the senior unsecured
      notes results in the notes being rated one notch beneath the Caa1 CFR
      under Moody's Loss Given Default Methodology.

      The stable outlook reflects our expectation that GMX will maintain
      adequate liquidity as it outspends cash flow to develop its properties.
      Negative ratings action could result if liquidity were to tighten due to
      unexpected production declines relative to debt funded capital spending,
      a reduction in availability under the company's borrowing base credit
      facility, or reduced cash flow due to uneconomic realized prices for
      natural gas production. Positive ratings action could result if GMX were
      to meet its forecasts for production growth in the Bakken and Niobrara
      leading to daily production over 15,000 boe with debt / average daily
      production of less than $25,000 /boe and trending downward.

      The principal methodology used in rating GMX was Moody's Independent
      Exploration and Production (E&P) Industry published in December 2008 .