NEW YORK--(BUSINESS WIRE)--Fitch Ratings expects to assign a rating of 'B-/RR4' to YPF S.A.'s (YPF) proposed senior unsecured debt issuance for up to US$500 million with a five-year bullet maturity. The proceeds will be used to fund fixed asset investments in Argentina and working capital requirements. The notes rank at least pari passu in priority of payment with all other YPF senior unsecured debt. The notes are rated the same as all senior unsecured obligations of YPF.
Key Ratings Drivers
YPF's ratings reflect its strong linkage with the credit quality of the Republic of Argentina (Fitch local and foreign currency IDRs of 'B-', Outlook Negative, and 'CC', respectively) and the company's low reserve life. The ratings also factor in YPF's strong business position in the local market as well as its strong credit protection measures.
LINKAGE TO SOVEREIGN: YPF's ratings reflect the close linkage with the Republic of Argentina resulting from the company's ownership structure as well as recent government interventions. The Republic of Argentina controls the company through its 51% participation after it nationalized the company on April 2012 by expropriating the controlling ownership previously owned by Repsol S.A. Since the expropriation, the company's strategy and business decisions are governed by the Republic of Argentina.
LOW HYDROCARBON RESERVE LIFE: The ratings consider the company's relatively weak operating metrics characterized by low reserve life and historically declining production levels. As of year-end 2012, YPF reported proved reserves of 979 million barrels of oil equivalent (boe) and average production of 485,000 boe per day. YTD September 2013, the company's average production of 485,000 boe per day is consistent with 2012 trends. Production has been relatively stable, though on a slight upturn during 2013, especially in 3Q13 reaching 496,500 boe per day. This translates into a reserve life of approximately 5.5 years, which is significantly below optimal levels and has the potential to create significant operational challenges in the medium to long term. During 2012, the company's reserve replacement ratio was approximately 85%.
STRONG BUSINESS POSITION: YPF benefits from a strong business position supported by its vertically integrated operations and dominant market presence in the Argentine hydrocarbons' market. Fitch anticipates that YPF will continue exercising an active role in domestic fuel and gas supply.
ADEQUATE CREDIT PROTECTION METRICS: The ratings reflect YPF's relatively solid credit protection metrics, characterized by moderate leverage and a manageable debt amortization schedule. As of the last 12 months (LTM) ended Sept. 30, 2013, total financial leverage, as measured by total debt-to-EBITDA, reached 1.2x, which is considered low for the assigned rating. As of year-end 2012, leverage (as measured by total debt-to-total proved reserves) was average at USD3.5 per boe. Total debt as of Sept. 30, 2013 amounted to approximately USD4.503 billion, of which approximately USD1.058 billion was short-term. Total cash and equivalents amounted to approximately USD1.192 billion as of Sept. 30, 2013. EBITDA for the LTM ended September 2013 was approximately USD3.664 billion. During recent years, the company's leverage has been increasing, mostly as a result of increases in debt. The company's stated strategy is to maintain its net leverage below 1.5x.
The 'RR4' Recovery Rating for the company's senior unsecured notes outstanding reflects an average expected recovery given default and is in line with the RR soft cap established for Argentina.
YPF's ratings could be negatively affected by a combination of the following: a downgrade of the Republic of Argentina's ratings; a significant deterioration of credit metrics; and/or the adoption of adverse public policies that can affect the company's business performance in any of its business segments.
A positive rating action in the short to medium term is considered unlikely given the linkage with sovereign credit quality and the Negative Outlook for all foreign and local currency IDRs.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage