Andrew Willis

Friday, June 05, 2009

OPTI Canada faces renewed pressure to raise capital on Friday, after Moody’s downgraded the oil sand company’s credit rating Friday and flagged concerns that OPTI may soon violate debt covenants.

There was chatter last week that OPTI was on the verge of tapping into investors’ revived interest in oil stocks by selling equity. These rumours that included speculation that executives at the Calgary-based firm were out doing road shows with potential institutional investors on the U.S. west coast - hello, Capital Group.

The downgrade from Moody’s spotlights the company’s need to fix its balance sheet, and fund future development of OPTI’s share in the Long Lake oil sands project. A financing seems possible, given the strong recent performance from oil stocks, but would likely be dilutive to existing owners.

Moody’s said Friday that it dropped OPTI’s rating because the company is likely to breach debt-to-EBITDA [or earnings before interest, taxes, depreciation and amortization] coverage covenants by September. The downgrade affects $2.1-billion (U.S.) of debt.

“OPTI will need to develop a more permanent solution to meeting its cash requirements while Long Lake positions itself to generate consistent cash flow,” said Moody’s.

OPTI’s is developing Long Lake with Nexen, which upped its ownership in the property at the expense of its junior partner earlier this year. The consensus view in the oil patch is OPTI will eventually be acquired by a larger oil sands player.

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