Ratings agency Fitch, downgrades Seven Energy to ‘C’

International ratings agency Fitch, has downgraded Seven Energy International Limited’s Long-Term Issuer Default Rating to ‘C’ from ‘CC’ following the non-payment of a material financial obligation.

The company was unable to make payments on 31 March 2017 under the US$385 million Accugas facility, which is secured on the gas upstream and midstream assets, and requested a standstill from the lending banks. 

It also failed to meet conditions for the interest capitalisation under the US$300 million senior secured notes and USD100 million notes due 2021, and was unable to make the related cash payment on 11 April 2017.

“These are due to macroeconomic issues that are outside of the control of the company,” the company tells BusinessDay. It adds that it is working ‘pro-actively’ with all stakeholders; including lenders towards a restructuring plan that it remains confident will allow the business to continue with an appropriate and sustainable balance sheet.

Credit ratings are used in the industry to assess an entity’s ability to pay its financial obligations and it applies to debt securities like bonds, notes, certain asset-backed securities but not to equity securities like common stock. A ‘C’ rating brings the company a step above ‘D’ ratings, which signifies a default in its ability to meet financial obligations.

Simultaneously, Fitch has affirmed wholly owned subsidiary Seven Energy Finance Limited’s US$300 million 10.25% senior secured notes due 2021 at ‘C’ with an ‘RR6’ Recovery Rating.

According to the ratings agency, the downgrade was on account of weak cash flow from its gas business, poor receivables and naira convertible issues.

However, the company remains optimistic in its battle for survival on account of its midstream gas infrastructure assets which are fully ring-fenced and serve as security for its USD385 million Accugas loan.

Seven Energy also expects that its World Bank partial risk guarantee (PRG), which is meant to compensate Seven Energy for up to USD112 million of gas supply invoices to Calabar power station expects it will be finalised in May-2017 after the approvals from regulatory authorities are obtained.

ISAAC ANYAOGU