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Moody's downgrades EQT on weak cash flow amid sustained low gas prices

Moody's lowered gas producer EQT Corp.'s senior unsecured rating to Ba1 from Baa3 with a negative outlook, citing weak cash flow metrics.

The rating agency also gave EQT a Ba1 corporate family rating, a Ba1-PD probability of default rating and an SGL-2 speculative-grade liquidity rating, according to a Jan. 13 news release.

Moody's said the downgrade reflects EQT's continued cash flow struggles in the low gas price environment, noting that it could pose risk to the corporation's debt reduction plans.

The rating agency also said that while the company has strong hedging for 2020, it is still exposed to weak prices in the upcoming years. Moody's expects the gas producer's retained cash flow to debt ratio in and beyond 2021 to be in the 25% to 30% range but said this ratio could weaken if gas prices stay low.

To improve its cash margins, EQT plans to cut debt through asset sales, implement a cost structure optimization and renegotiate its midstream contracts with EQM Midstream Partners LP, Moody's noted.

"Although [EQT] is pursuing several avenues to reduce debt and enhance its cash flow, the execution risk involved in those initiatives is reflected in the negative outlook," Moody's senior analyst Sreedhar Kona said in the release.

Moody's said EQT's ratings might be lowered further if the company cannot cut its debt and support its credit metrics in the low gas price environment.