Ecopetrol Takes Out Additional Financing, Sees Credit Ratings Downgraded

Colombian petroleum company Ecopetrol (BVC:ECOPETROL, NYSE:EC, TSX:ECP) announced Friday that it opened a $175 million USD ($578 billion COP) line of credit with The Bank of Tokyo-Mitsubishi UFJ,Ltd. (NYSE:MUFG, TSE:MUFG) The loan was approved by Minhacienda, Colombia’s finance and public credit ministry by Authorization Resolution 168 of January 28,2016.

The credit line has a term of five years, amortizable for 2.5 years, with interest and principal payments to be made biannually (twice a year) at LIBOR+145 basis points. The terms are similar to the loan taken out by Ecopetrol in February of last year.

Meanwhile, Moody’s Investors Service downgraded Ecopetrol’s credit rating from Baa2 to Baa3 and placed the company’s outlook under review. While Ecopetrol remains investment grade under the new rating, the downgrade reflects a persistent environment of low oil prices, which will continue to negatively affect the company’s cash flow and financial indicators, said Moody’s. Ecopetrol’s baseline credit assessment was downgraded from Baa3 to ba3, and does not include implicit government support, said Moody’s.  While Ecopetrol is publicly traded, the government of Colombia maintains a controlling majority of shares in the company.

Standard & Poors has downgraded its outlook on Ecopetrol from stable to negative, yet the firm maintains Ecopetrol at a steady BBB credit rating. Ecopetrol’s stand-alone credit profile, which does not include the government’s implicit support, was downgraded from bbb- to bb. This decision was based on the expectation that the company’s credit metrics will likely be weaker because of lower hydrocarbon price assumptions by the rating agency.

Standard & Poors credited Ecopetrol for austerity and cost efficiency measures the company has taken to reduce the effects of the current low oil price environment. In a report, Standard & Poors observed that because of Ecopetrol’s importance, the company could likely count on backing from Colombia’s national government.

According to Standard & Poors, Ecopetrol’s liquidity resources for the next 12 months should be adequate, estimating that the sources of liquidity will exceed their uses by 1.2 times and as indicated by the Bank of Tokyo financing, should continue to have good access to market based financing resources.