Expand Energy has joined EQT Corp. in the triple-investment-grade credit-rating club.
Moody’s Ratings issued a revised score April 16, following Fitch Ratings and S&P Global Ratings, which revised their grades on Expand’s debt profile to investment grade in October.
The Fitch and S&P revisions were made upon Expand’s formation Oct. 1 when Chesapeake Energy closed its merger with fellow Appalachian and Haynesville pureplay gas producer Southwestern Energy, becoming the largest U.S. gas producer.
The new Moody’s rating lifts Expand’s debt rating to Baa3 from the speculative-grade Ba1. The Fitch and S&P upgrades were each to BBB-, up from the speculative BB+.
Moody’s vice president and senior credit officer Amol Joshi reported, "The upgrade to Baa3 acknowledges Expand Energy's progress in reducing debt since its merger with Southwestern and expected further deleveraging to achieve its net debt target of approximately $4.5 billion, aided by attractively priced hedges on a meaningful portion of its natural gas production through 2026."
Joshi added, "Expand's merger with Southwestern completed last year consolidates its scale in some of the core natural gas producing regions and improves its cash flow durability."
Expand Energy did not provide a comment on the news by press time.
AI data center, LNG
EQT CFO Jeremy Knop said in a February investor call that generative AI data center operators and LNG buyers require their gas suppliers have investment-grade ratings, which EQT has.
“That's not really a pervasive theme with many of our peers or really any of them at this point, especially across all three [rating] agencies.”
EQT’s negotiated position is boosted by the fact that its gas is net zero in Scope 1 and Scope 2 greenhouse gas emissions, he added, as well as that it is both a gas producer and midstream operator.
Still, he added, “a lot of it comes down to counterparty credit risk.”
A 1 GW generative AI data center could use 1 million Nvidia H100 chips, which could cost $30 billion based on the current market price.
“If you're the tech company building that, you're not going to compromise with a non-investment-grade counterparty, period,” Knop said. “You just don't take that risk.”
At the time among pureplay gas producers, “it's kind of just EQT because we don't really have any [other producer] who can provide really the rest of those attributes as part of negotiating one of these deals.”