Investing.com -- Moody’s Ratings has upgraded the senior unsecured notes ratings of Expand Energy Corporation to Baa3 from Ba1, and simultaneously withdrew the company’s Ba1 Corporate Family Rating (CFR), Ba1-PD Probability of Default Rating (PDR) and SGL-1 Speculative Grade Liquidity Rating (SGL). The ratings agency has also revised the company’s outlook from positive to stable.
The upgraded rating is a recognition of Expand Energy’s successful debt reduction following its merger with Southwestern, and its anticipated further deleveraging to reach a net debt target of approximately $4.5 billion. This is expected to be facilitated by favorably priced hedges on a significant part of its natural gas production through 2026, according to Amol Joshi, Moody’s Ratings Vice President -- Senior Credit Officer. Joshi also noted that the merger with Southwestern, completed in 2024, has bolstered Expand’s presence in key natural gas producing regions and improved its cash flow resilience.
The upgrade to Baa3 reflects Expand’s status as the largest independent North American natural gas producer, its improved capital and cost structure resulting from the merger synergies, and the company’s anticipated debt reduction through 2026.
The Baa3 rating is backed by the substantial size and scale of Expand’s exploration and production operations, with a diversified asset base in the leading natural gas focused supply basins in the US. Expand’s leverage metrics are solid and supported by a large and more resilient asset base. The merged company is expected to achieve significant debt reduction through 2026, supporting its credit profile.
Expand’s management has committed to targeting net debt of approximately $4.5 billion and leverage of less than 1x net debt to EBITDAX at mid-cycle prices. The company has an active and consistent hedging strategy and has hedged a significant portion of its 2025-26 natural gas production, reducing revenue and cash flow volatility.
The company’s focus on debt reduction and cost synergies has enhanced its ability to handle negative credit impacts from carbon transition risks. The financial performance of Expand will continue to be influenced by natural gas price cycles. Expand, as a natural gas producer, is expected to benefit from the continued growth in natural gas demand.
As of December 31, Expand had $317 million of balance sheet cash, excluding $78 million of restricted cash. The company’s $2.5 billion unsecured revolving credit facility was undrawn at the end of 2024. The company does not have any near-term debt maturities until its revolver matures in December 2027.
The stable outlook for Expand reflects the company’s substantial hedge position and asset integration benefits that are expected to support free cash flow generation and debt reduction through 2026.
Expand’s ratings could be upgraded to Baa2 if the company can sustain a leveraged full-cycle ratio (LFCR) approaching 2.5x and retained cash flow (RCF) to debt exceeding 60% at mid-cycle natural gas prices. However, the ratings could be downgraded if Expand generates significant negative free cash flow, capital efficiency deteriorates significantly, or RCF to debt falls below 30%. Significant debt-funded acquisitions or shareholder payouts could also impact the ratings.
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