Research: Rating Action: Moody’s Raises Callon Petroleum’s CFR to B2; stable outlook


New York, April 25, 2022 — Moody’s Investors Service (Moody’s) has upgraded the ratings of Callon Petroleum Company (Callon), including the corporate family rating (CFR) from B2 to B3, the probability of default rating ( PDR) to B2-PD from B3-PD and the ratings on its senior unsecured notes to Caa1 from Caa2. Speculative Grade Liquidity (SGL) was upgraded to SGL-2 from SGL-3. The outlook for ratings changed from positive to stable.

“Callon’s ratings upgrade reflects the improvement in its credit metrics,” said James Wilkins, vice president of Moody’s. “The current high commodity price environment will allow the company to continue to generate positive free cash flow and reduce debt, while increasing production volumes.”

Here is a summary of the rating activity:

Updates :

..Issuer: Callon Petroleum Company

…. Corporate Family Ranking, upgraded to B2 from B3

…. Default scoring probability, upgrade to B2-PD from B3-PD

…. Speculative liquidity rating, upgrade to SGL-2 from SGL-3

…. Senior regular unsecured bond/debenture, upgraded from Caa1 (LGD5) to Caa2 (LGD5)

Outlook Actions:

..Issuer: Callon Petroleum Company

….Outlook, changed to stable from positive


Callon’s CFR upgrade to B2 reflects its improved credit profile, supported by positive free cash flow generation that will enable further debt reduction in 2022-23. Callon’s 2022 investment program will generate modest production growth. Drilling activity and spending will be focused on the Permian Basin (85% of 2022 spending, including acreage acquired with the acquisition of Primexx Energy Partners (Primexx) in 2021), with the remaining capital applied in Eagle Ford Basin. Moody’s expects Callon to improve leverage metrics, including retained cash flow to debt above 40% in 2022 (from 31% in 2021) and a full cycle ratio at leverage greater than 2x (2.5x end of 2021). Hedges covering more than half of projected oil production for 2022 will provide stable cash flow, but limit the rise in high oil prices. The share of hedged oil production will decline in 2023, potentially giving Callon greater exposure to high oil prices. The company also expects to realize synergies by integrating the acquired area of ​​Primexx in 2022-23.

The B2 CFR reflects Callon’s considerable debt obligations, high capital requirements to expand acreage and volatile cash flow. The Permian assets will require significant capital to develop, while the Eagle Ford assets, which are also primarily oil-producing assets, are more mature and will require less capital.

Callon’s rating is supported by its size, which has benefited from acquisitions and a track record of organically growing production and reserves, diversified operations focused on two attractive shale plays in the Permian Basin and the Eagle Ford, competitive unit costs, strong operating margins, and a high proportion of oil in its production volumes.

The senior unsecured notes are rated Caa1, two notches below CFR B2, because they are contractually subordinated to a large number of senior secured (unrated) debt in the capital structure (320 million dollars of second lien senior secured notes due 2025 and borrowings under the secured revolving credit facility).

Callon’s SGL-2 rating reflects its good liquidity, supported by improved operating cash flow as well as its revolving credit facility. The Revolver had a borrowing base of $1.6 billion (confirmed as part of the re-determination of the borrowing base in the fall of 2021), $24 million in letters of credit and $785 million of borrowings at the end of 2021, leaving $791 million available on the revolver from year-end 2021. The revolver and second lien notes have two financial covenants – a minimum current ratio of 1x and a maximum leverage ratio of 4x. Moody’s expects the company to remain in compliance with the debt covenants through 2023. The Revolver matures on December 20, 2024 and is subject to a spring-loaded maturity clause, if a certain amount of notes due in 2024 is in circulation. The next maturity of Callon’s bonds will be in October 2024.

The stable outlook reflects Moody’s expectation that the company will generate positive free cash flow in 2022 and 2023 while reducing debt and further improving its credit metrics. Its reported short-term net debt to adjusted EBITDA target is less than 1.5x.


Ratings could be upgraded if Callon significantly reduces debt and maintains strong credit metrics, with retained cash flow (RCF) to debt maintained above 35% and leveraged full cycle ratio greater than 1.5x while increasing production volumes. Ratings could be downgraded if the RCF of the debt falls below 25% or if the capital efficiency or liquidity position weakens significantly.

The main methodology used in these ratings is Independent Exploration and Production published in August 2021 and available at You can also visit the rating methodologies page on for a copy of this methodology.

Callon Petroleum Company, headquartered in Houston, Texas, is an independent exploration and production company with operations in the Permian Basin and Eagle Ford Shale in Texas.


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James Wilkin
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Steven Wood
MD – Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
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JOURNALISTS: 1 212 553 0376
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