S&P Upgrades SM Energy to 'BB' After Civitas Merger

Rating Upgrade Overview

S&P Global Ratings has upgraded SM Energy Co. to 'BB' from its previous rating, assigning a stable outlook following the completion of its merger with Civitas. The action removes the company from CreditWatch Positive, reflecting confidence in its new operational and financial standing.

Enhanced Operational Scale

The merger significantly enhances SM Energy's size and geographic diversity. The combined entity now operates approximately 823,000 net acres across key basins like the Permian and Denver-Julesburg. Pro forma daily production has surged to about 550,000 barrels of oil equivalent per day, a major increase from its standalone output, with proved reserves standing at 1.48 billion boe.

Financial Strategy and Market Impact

SM Energy assumed nearly $5 billion of Civitas' debt in the transaction. The company's immediate priority is debt reduction, targeting at least $1.0 billion from asset divestitures in the first year. S&P forecasts the company’s funds from operations to debt ratio will improve to approximately 60% by year-end 2027 as it moderates production to optimize free cash flow.

Summary

While the merger strengthens SM Energy's competitive position, S&P highlights potential integration risks. The market will be watching the company's ability to execute its deleveraging strategy and efficiently manage its expanded asset portfolio in the coming months.

FAQ

Q: What is SM Energy's new credit rating from S&P?
A: SM Energy's new rating is 'BB' with a stable outlook.

Q: Why was SM Energy's rating upgraded?
A: The rating was upgraded due to the enhanced size, scale, and geographic diversity resulting from its merger with Civitas.

Source: Investing.com