Fitch Upgrades SM Energy to 'BB+' After Civitas Merger

Key Rating Action

Fitch Ratings has upgraded SM Energy Company's Long-Term Issuer Default Rating to 'BB+' from 'BB'. This action follows the completion of its $12.8 billion all-stock merger with Civitas Resources and includes a Stable Outlook.

Merger Impact on Operations

The merger creates a larger entity with production of around 526,000 barrels of oil equivalent per day. While gross debt has risen to approximately $8 billion, the deal diversifies SM Energy's asset base, with significant operations in the Permian and DJ basins.

Financial Strategy and Outlook

SM Energy plans to accelerate debt reduction through at least $1 billion in divestitures within one year. The company is targeting a leverage ratio of 1.0x and anticipates $200 million in annual synergies, which underpins Fitch's stable outlook despite increased near-term leverage.

Summary

The upgrade reflects Fitch's confidence in the merged company's improved scale and deleveraging capacity. Key factors to watch include the successful integration of assets and progress on debt reduction goals.

FAQ

Q: What is SM Energy's new credit rating from Fitch?
A: SM Energy's new Long-Term Issuer Default Rating is 'BB+' with a Stable Outlook.

Q: How will the company manage its increased debt?
A: Through asset divestitures of at least $1 billion and using free cash flow for debt reduction.

Source: Investing.com