Investing.com -- Moody’s Ratings has downgraded the long-term corporate family rating (CFR) of Tullow Oil (LON: TLW ) plc (Tullow) to Caa2 from Caa1. The downgrade also applies to Tullow’s probability of default rating (PDR), which has been revised to Caa2-PD from Caa1-PD. The rating of the company’s outstanding backed senior secured notes, due in 2026 and valued at approximately $1.385 billion, has similarly been downgraded to Caa2 from Caa1. The outlook for Tullow remains negative.
The downgrade reflects concerns about Tullow’s approaching debt maturity and uncertainty about how this will be addressed. The company’s overall liquidity position is also weak, despite the expected receipt of around $300 – 380 million in cash proceeds from recent asset sales in Gabon and Kenya.
Moody’s also revised Tullow’s ESG Credit Impact Score to CIS-5 from CIS-4. This change suggests that the company’s ratings are lower than they would have been without exposure to ESG risks, and the negative impact is more pronounced than for issuers scored CIS-4. This adjustment reflects governance risks due to a high amount of debt nearing maturity, which is affecting Tullow’s liquidity and the sustainability of its capital structure. The company also faces high environmental and social risks due to its focus on upstream oil and gas activities.
Tullow’s Caa2 CFR is three notches below the scorecard-indicated outcome of B2, based on historic metrics for the financial year ended December 2024. This discrepancy reflects the company’s elevated refinancing risk, exposure to volatile hydrocarbon prices, and smaller earnings and cash flow generation capacity after the planned asset disposals.
Tullow’s liquidity is weak due to significant debt obligations maturing in May 2026, neutral to mildly positive free cash flow under Moody’s base case scenario, and the absence of external liquidity sources after the expiry of the revolving credit facility in June 2025.
Tullow’s capital structure includes a $250 million senior secured revolving credit facility expiring in June 2025, $1,385 million of senior secured notes due in May 2026, and a $400 million five-year term facility provided by Glencore (OTC: GLNCY ) Energy UK Ltd. The backed senior secured instrument rating of Caa2 is in line with Tullow’s CFR and reflects the status of the bond as the largest piece of debt in the company’s capital structure.
The negative outlook reflects the upcoming maturity of the company’s senior secured notes in 12 months and the challenging refinancing prospects due to market dynamics, financial leverage, and exposure to volatile hydrocarbon prices.
While a rating upgrade is currently unlikely, it would require a significant improvement in operating performance, liquidity, and the sustainability of Tullow’s capital structure. Conversely, Tullow’s ratings could be downgraded further if the likelihood of a default increases or if recovery expectations weaken.
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