DBRS Assigns BBB (high) Rating, Under Review with Negative Implications, to Cenovus Energy’s USD Senior Notes Offering

DBRS Limited (DBRS) has today assigned a rating of BBB (high) to Cenovus Energy Inc.’s (Cenovus or the Company) USD Senior Unsecured Notes (the Notes) following the Company’s announcement regarding the closing of an offering for ten-, 20- and 30-year senior unsecured notes for an aggregate amount of USD 2.9 billion. DBRS has placed the rating Under Review with Negative Implications. The Notes will rank pari passu with Cenovus’s existing senior unsecured debt. The net proceeds of the offering will finance the cash purchase price as well as pay certain fees and expenses for the acquisition of assets in Western Canada from ConocoPhillips (COP).

On March 29, 2017, DBRS placed the Company’s Issuer Rating as well as its Senior Unsecured Debt rating Under Review with Negative Implications. This change followed Cenovus’s announcement that it had entered into an arrangement to acquire COP’s Western Canadian oil and gas assets for a total consideration of $17.7 billion, which included $14.1 billion in cash and 208 million Cenovus common shares issued to COP.

DBRS notes that the acquisition strengthens the Company’s business risk profile. At the same time, the additional debt to be incurred increases Cenovus’s financial leverage ratios enough to pressure the Company’s overall Issuer and debt ratings. Cenovus has completed a bought-deal common equity offering for $3.0 billion in gross proceeds, which are to be applied to retiring the equity bridge financing facility, and the Company has announced plans to sell assets to further reduce indebtedness. The proceeds raised from asset sales and applied to further debt reduction are expected to have an impact on the degree of any possible rating downgrade. Nevertheless, based on the strength of Cenovus’s business risk profile, DBRS anticipates that the Company’s ratings should remain within the BBB range. DBRS anticipates resolving the Under Review status by closing of the transaction.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Companies in the Oil and Gas Industry (September 2016), which can be found on dbrs.com under Methodologies.