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GMX Resources Inc. Message Board

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  • sleestack76 sleestack76 Feb 2, 2011 3:29 PM Flag

    Moody Rating

    part 2

    RATINGS RATIONALE

    "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 .

 

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