gst preferred debt

[bigtex]

Dan still feel strong on GST pref.


Rating Action:
Moody's changes Gastar's outlook to stable, affirms Caa1 CFR




Global Credit Research - 26 May 2015
New York, May 26, 2015 -- Moody's Investors Service, ("Moody's") changed Gastar Exploration Inc.'s (Gastar) outlook to stable from positive and affirmed its Caa1 Corporate Family Rating (CFR). Moody's also affirmed Gastar's Caa1-PD Probability of Default, Caa2 senior secured notes rating, and SGL-3 speculative grade liquidity rating.



"The continuing weak commodity price environment is pressuring Gastar's cash flow based metrics and is not allowing it to grow its production meaningfully," said Arvinder Saluja, Moody's Vice President.



Ratings Affirmed:

Gastar Exploration Inc.

..Corporate Family Rating (CFR) -- Caa1

..Probability of Default -- Caa1-PD

..$325mm Senior Secured Notes -- Caa2 (LGD 5 from LGD 4)

..Speculative Grade Liquidity Rating -- SGL-3

Outlook Actions:

..Outlook to Stable from Positive



RATINGS RATIONALE



Gastar's Caa1 CFR reflects its relatively modest scale and geographic concentration, execution risk related to growth, its limited track record in the Hunton Limestone play, and weak cash flow coverage metrics. Even though Gastar has a balanced production mix with roughly 50% natural gas, 30% oil, and 20% natural gas liquids (NGLs), weaker prices have impacted all three streams. This tough environment makes it harder for Gastar to increase its production scale due to decreased capex and drilling activity. The rating is supported by Gastar's operator status for most of its reserves, particularly in the Marcellus Shale, track record of using joint ventures (JVs) to reduce capital spending, and available inventory of drilling opportunities to facilitate future growth when cash flow permits.



The company has adequate liquidity, as reflected by the speculative grade liquidity rating of SGL-3, to cover its cash needs through at least early-2016. We expect the company to use cash from operations and available liquidity (including revolver borrowings) to fund its capital spending program. The company upsized its borrowing base revolver to $200 million in March 2015 and adjusted its covenants to provide increased cushion. It had $135 million available under the revolver as of March 31, 2015. However, the borrowing base could decline in next redeterminations and covenant cushion could decrease in 2016 as requirements step up and favorable hedges roll off.



The stable outlook reflects our expectation that Gastar will maintain its production, reserves base, and adequate liquidity in this difficult price environment. An upgrade is possible if retained cash flow to debt approaches 20% while the company maintains its production and reserve base as well as adequate liquidity. A meaningful decline in production and/or weak liquidity could prompt a downgrade. Sustained leverage above $40,000 / boe/d on a production basis and above $14/boe on a PD reserves basis could also lead to a negative ratings action.



The principal methodology used in these ratings was Global Independent Exploration and Production Industry published in December 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies

[fvhowe@yahoo.com]

Good question, would like Dans opinion........"The stable outlook reflects our expectation that Gastar will maintain its production, reserves base, and adequate liquidity in this difficult price environment. An upgrade is possible if retained cash flow to debt approaches 20% while the company maintains its production and reserve base as well as adequate liquidity" Will they be able to maintain production and cash flow?

[grimaldi]

Hope so, I have botgh the A ans B, bot well below par some time ago.

[dan_s]

Dividends on GST pfd stock look secure to me. I have updated my forecast model for GST and posted it to the website.

Per GST on May 7: "At March 31, 2015, we had approximately $12.1 million in available cash and cash equivalents and $135 million of availability under our $200 million revolving credit facility. We expect to fund our remaining 2015 capital program through existing cash balances, internally generated cash flow from operating activities, borrowings under the revolving credit facility, property sales and possible capital markets transactions, or some combination thereof."

CapEx program for 2015 is $103 million. Most will be spent in Oklahoma to increase oil production.

Their recent Oklahoma asset sale shores up the balance sheet.

My Fair Value Estimate for GST (common stock) is $5.75, compared to First Call's price target of $4.56 (which is up over $0.40/share since they announced Q1 results).