OREANDA-NEWS. Fitch Ratings says there is no immediate rating impact on MIE Holdings Corporation (MIE; B/Stable) following its proposal to amend the indentures on its USD200m senior notes due 2018 and USD500m senior notes due 2019, and the company's profit warning.

Fitch views MIE's proposed indenture amendments as providing the oil and gas production company with more flexibility to incur debt and create liens, as well as to engage in acquisitions and disposals, which could result in considerable changes in the company's credit profile. The agency considers any acquisition or disposal as event risk, and would evaluate the impact of any transaction on MIE's credit profile and its senior unsecured rating as and when it occurs.

MIE's proposed indenture amendments would provide for more headroom for debt, both unsecured and secured, on a consolidated basis, though the requirement to keep the fixed charge coverage ratio at or above 2.5x before it can incur additional debt remains unchanged. The proposed changes would allow the non-guarantor restricted subsidiaries for MIE's 2018 and 2019 notes, which are MIE's non-wholly owned restricted subsidiaries, to incur higher debt. The changes would also permit the addition of debt in relation to an acquisition, though the ratio of total indebtedness to total assets will have to remain at or below 15%. Liens created over debts arising from an acquisition or those incurred by non-guarantor subsidiaries would also be allowed.

In addition, MIE is proposing to allow investments in permitted businesses up to a maximum of 15% of total assets, whilst the cap of permitted investments of 7.5% of total assets remains unchanged. The company is also proposing to extend the time it has to find replacement assets should it sell any assets. It may also, at its sole discretion, make an offer to redeem its debt in the case of major asset disposals.

The current low oil prices have reduced MIE's rating headroom. Fitch's rating on the company incorporates a likely deterioration in operating performance and a rise in leverage in the near term. MIE's warning of decline in profitability for 1H15, and its announced year-to-May 2015 operational and liquidity statistics, are largely in line with the agency's expectation. Therefore, the company's profit warning announcement has no immediate impact on the rating.

Having said that, the rating and Stable Outlook also assume a subsequent improvement in MIE's credit profile with higher oil prices in the medium term, in line with the agency's oil price deck, as well as production ramp-up commencing 2016. The rating is also supported by MIE's adequate liquidity position and manageable near-term refinancing risk.

As such, any asset disposal that would significantly reduce MIE's oil and gas production could be credit negative. The impact on the credit profile would also depend on the quantum and intended use of sale proceeds. Any acquisition that is primarily debt-funded, and/or does not add to 1P reserves and production in the near term, could be viewed negatively. In addition, if oil prices remain significantly below Fitch's price deck, MIE's liquidity situation could deteriorate which could impact its rating.