Encana Corp, Cenovus Energy Inc ratings cut to junk by Moody’s as oil rout weighs

Cenovus Energy Inc. and Encana Corp. had their debt ratings lowered to junk by Moody’s Investors Service like a prolonged crude-price rout saps cash flows.

Moody’s cut the ratings of senior unsecured notes for both Canadian producers three steps to Ba2, or two levels below investment grade, from Baa2, based on separate statements Thursday. It also reaffirmed the Baa2 rating of Husky Energy Inc., keeping the Canadian producer’s debt investment grade.

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The ratings moves be analysts and energy companies brace for that potential of affordable prices for extended in a downturn which has already extended about 20 months. Moody’s reduced its outlook for oil in January for the second time in a month, citing a persistent global glut and weaker demand in China. U.S. crude prices hovering around US$30 a barrel are down about 70 per cent in the high in mid-2014. 

The actions resolve reviews by Moody’s started in December. While ratings cuts can be seen as lagging indicators such as the following bond-market pricing, there can be implications for borrowing costs. Many funds can’t hold high-yield notes, so a cut from investment grade to junk could trigger a wave of selling.

Bloomberg News