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Investing.com -- Moody’s Ratings has confirmed the Corporate Family Rating (CFR) of Civitas Resources, Inc. (Civitas) at Ba3. The Probability of Default Rating (PDR) remains at Ba3-PD and the ratings for senior unsecured notes are maintained at B1. The Speculative Grade Liquidity (SGL) rating stays at SGL-2. The outlook for Civitas has been adjusted from positive to stable.
The revision in the outlook to stable is a response to the weaker commodity price environment, the absence of debt reduction to this point, and the potentially longer timeframe required to decrease leverage, stated Jonathan Teitel, Moody’s Vice President - Senior Analyst. The stable outlook benefits from the successful integration of acquisitions in the Permian region during 2023-2024 and is supported by the recently amended financial policies that prioritize debt reduction.
The Ba3 CFR of Civitas mirrors its large scale, basin diversification, and supportive financial policies. In 2025, Civitas implemented a new capital allocation strategy that prioritizes debt reduction over shareholder returns. The company plans to use the majority of its free cash flow for debt reduction in 2025, aiming for a net debt of $4.5 billion by the end of the year. Previously, formulaic shareholder returns limited its financial flexibility. Civitas has a long-term net leverage target of 0.75x. The $475 million deferred payment in January 2025 for the Vencer acquisition likely increased revolver borrowings.
Acquisitions of assets from Hibernia Energy and Tap Rock Resources in 2023, and Vencer Energy in 2024, significantly increased production and drilling inventory while diversifying production into the economically favorable Permian Basin. This diversification also reduced concentrated exposure to regulatory risks for oil and gas producers in Colorado. In early 2025, Civitas acquired additional Permian assets for $300 million and plans to offset this by selling $300 million in assets, likely in the DJ Basin.
As of December 31, 2024, the company had $76 million in cash and $450 million in outstanding revolver borrowings. The revolver has $2.5 billion in elected commitments and a $3.4 billion borrowing base, with elected commitments increased from $2.2 billion in February 2025. We expect Civitas to proactively address its $400 million in senior notes due October 2026 and avoid triggering the springing maturity.
Civitas’ senior unsecured notes are rated B1, one notch below the CFR, due to their subordination to the senior secured revolver.
The stable outlook reflects our expectation that Civitas will generate free cash flow and reduce debt in accordance with its revised financial policies to maintain supportive credit metrics.
Factors that could lead to an upgrade include consistent positive free cash flow, debt reduction and significant progress toward its stated long-term leverage target; organic production growth and replacement of reserves at competitive costs; retained cash flow (RCF) to debt above 40%; and maintenance of solid liquidity.
Factors that could lead to a downgrade include a meaningful decline in production, RCF/debt below 25%, weakening liquidity, or regulatory developments adverse to the company.
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