White Star Petroleum, backed by EMG, upgraded at S&P

White Star Petroleum, the oil-and-gas producer backed by Energy & Minerals Group, drew a debt upgrade from S&P Global Ratings after it exchanged its second-lien debt and closed a $200 million acquisition of production fields from Devon Energy Corp.

While S&P lifted its rating from a selective default, White Star debt remains risky, S&P noted “Despite the debt reduction and material improvement in leverage, we believe liquidity remains tight and … the company could face a liquidity shortfall next year,” analyst Carin Dehne-Kiley said in a research note.

Still, White Star doubled production and added more than 40 percent to its most recent annual proved-reserve base after wrapping up the Devon deal, S&P said. White Star also lined up a new credit facility with a borrowing base of $210 million, S&P noted.

“Consistent with what has been previously disclosed, we remain pleased with the successful restructuring of White Star,” a spokeswoman for EMG told Buyouts.

S&P lifted its corporate rating on the Oklahoma City company to CCC+ from SD (selective default). The CCC rating means the debt is vulnerable and depends on favorable business, financial and economic conditions to meet financial commitments, S&P definitions say.

The debt-rating firm issued a negative outlook, based on its view that the company’s liquidity could be challenged unless it raises external capital by issuing equity or selling assets or cuts capital spending.

The upgrade came after S&P Global Ratings on April 28 cut its view on White Star to SD after the company repurchased $148 million face value of its 12 percent second-lien notes due 2020 for $19.4 million cash in open-market purchases. S&P viewed the transactions as a distressed exchange, “given our belief that there was a realistic possibility of default prior to the transactions.”

An SD rating means an obligor has selectively defaulted but will continue to meet its payment obligations on other issues or classes of debt in a timely manner, according to S&P definitions.

In April, White Star changed its name from American Energy – Woodford as part of its transition to a stand-alone company, independent of American Energy Partners. That’s the private equity firm formerly headed up by Aubrey McClendon, who died in March in a car crash.

In February, Energy & Minerals Group named Elliot Chambers CEO of White Star. He previously worked at American Energy Partners and Chesapeake Energy Corp, as well as Colgate-Palmolive.

Energy & Minerals Group did not respond to an email from Buyouts.

Action Item: Energy & Minerals Group, http://emgtx.com/

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