Moody's rates Connacher loans B1

Moody's Investors Service said it assigned a B1 corporate family rating to Connacher Finance Corp. and B1 ratings to its $180 million senior secured seven-year term loan B and $15 million senior secured bank revolver. The outlook is stable.

Together with C$103 million of cash equity from parent company Connacher Oil and Gas Ltd., the debt facilities will fund project costs totaling at least $289 million, including refinancing existing Connacher Finance debt and assuming a fully drawn bank revolver.

The agency said the ratings reflect the challenges and timing, development and production cost, production and recovery rate and margin uncertainties of the project's leveraged greenfield steam-assisted gravity drainage bitumen development, sponsored by a small though experienced firm in the face of severe sector cost pressures; highly volatile and cyclical crude oil prices that are currently softening; and deep bitumen price differentials relative to light sweet crude oil.

Partial risk mitigants include a one-year interest reserve account, adequate third-party engineered resource base for project development and for asset coverage relative to the rating; a potential for an eventually large proven and probable reserve base; and low reserve replacement risk.

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