July 6 - Overview
-- In January 2012, the board of directors for independent U.S.
exploration and production company Venoco approved the takeout offer from the
company's chairman and CEO to purchase the company for $1.45 billion.
-- We are keeping the ratings on Venoco Inc. on CreditWatch with
negative implications pending further information regarding the financing of the
-- We will resolve the CreditWatch once the company obtains details
regarding financing of the buyout deal.
On July 6, 2012, Standard & Poor's Ratings Services kept its ratings on
Denver-based Venoco Inc., including the 'B' corporate credit rating, on
CreditWatch with negative implications, where it placed them on Jan. 18, 2012.
Standard & Poor's placed its ratings on Venoco on CreditWatch negative
following the announcement that the company had entered into a definitive
merger agreement under which its chairman and CEO, Tim Marquez, would acquire
the company through a wholly owned entity, Denver Parent Corp. (unrated). The
announcement followed a five-month evaluation of the proposal by a special
committee of Venoco's board of directors, which concluded that Marquez's
proposal was in the best interests of the public shareholders. Venoco extended
the deadline until July 20 for its CEO to arrange financing for the proposed
The total purchase price is about $1.45 billion, including the assumption of
$685 million in debt. Marquez, along with affiliated trusts and foundations,
currently owns 50.3% of Venoco's common shares outstanding, which, if the deal
is approved, will be reinvested into Denver Parent. Consequently, Denver
Parent will have to raise about $385 million to $400 million to fund the
buyout, including fees and expenses.
If the buyout is funded with equity, there would be minimal impact to our
leverage ratios. However, if the deal is funded with 50% or more debt, as we
expect, debt-to-EBITDAX could exceed 5x at the end of 2012, which is above our
expectations for the current rating. (Our EBITDAX estimates are based on
Standard & Poor's price deck of $85/barrel WTI crude oil and $2.00/Mcf Henry
Hub natural gas.) We believe the financing will include some portion of debt.
Although covenants on Venoco's existing credit facility require the company to
maintain leverage below 4x, we believe a new or amended facility could be put
in place following the capital restructuring.
The buyout proposal has received the required shareholder approval (a majority
of the remaining 49.7% shareholders voted in favor). It is subject to
customary regulatory approvals and a financing condition. Assuming the
required approvals are received, we expect closing to occur shortly after
acceptable financing is obtained.
Depending on how the buyout proposal is ultimately structured, we could lower
the corporate and issue-level ratings if leverage exceeds 5x.
Standard & Poor's intends to resolve the CreditWatch listing once it obtains
details regarding financing of the buyout deal, likely by the end of July 2012.
Related Criteria And Research
-- Standard & Poor's Lowers Its U.S. Natural Gas Price Assumptions; Oil
Price Assumptions Are Unchanged, April 18, 2012
-- Standard & Poor's Raises Its Oil Price Assumptions; Natural Gas Price
Assumptions Unchanged, March 22, 2012
-- Key Credit Factors: Global Criteria For Rating The Oil And Gas
Exploration And Production Industry, Jan. 20, 2012
Ratings On Watch Negative
Corporate Credit Rating B/Watch Neg/--
Senior Unsecured B-/Watch Neg
Recovery Rating 5
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings referenced
herein can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left