Nov 8 - Standard & Poor's Ratings Services today said it raised its long-term corporate credit rating on Calgary, Alta.-based Connacher Oil and Gas Ltd (CLL.TO: Quote, Profile, Research) to 'BB-' from 'B+'. At the same time, Standard & Poor's assigned its 'BB' debt rating, with a recovery rating of '2', to Connacher's proposed US$600 million second-lien senior secured eight-year notes. The '2' recovery rating indicates an expectation of substantial (70%-90%) recovery in a default scenario. The outlook is stable. (For the complete corporate credit analysis on Connacher, see Standard & Poor's research report, to be published on RatingsDirect immediately following this media release.)

Connacher will use the proceeds from the notes to repay its US$180 million term loan and amounts drawn under its existing revolving credit facilities, fund a one-year interest reserve on the notes, and fund the construction of its Algar project.

"Our decision to raise the corporate credit rating is based on Connacher's recent commissioning of Pod 1 of its Great Divide project, and Standard & Poor's assessment that the company will achieve projected profitability, thus strengthening its business risk profile," said Standard & Poor's credit analyst Jamie Koutsoukis. "Although Connacher's debt levels will increase and spending will exceed operating cash flows through 2009 as they proceed with Pod 2 construction, the cash flow generated by the operations of Pod 1, the Montana refinery, and its conventional production will support the increased capital commitments within the current rating," Ms. Koutsoukis added.

The stable outlook reflects our expectation that Pod 1 of Connacher's Great Divide project reaches production at its design capacity in mid-2008, and internally generated cash flows will meet the company's debt and sustaining capital expenditure commitments for its operating assets. Furthermore, it incorporates our expectation that Connacher will complete the development of its Pod 2 Algar project on schedule without any material cost increases or any need for significant additional funding. We do not expect, however, that Connacher's balance sheet will materially improve in the near-to-medium term as it begins spending on its Algar project. An outlook revision to positive depends on Connacher's ability to significantly reduce its debt, combined with improvements in free cash flow generation, which is unlikely in the near term. Conversely, should the company not maintain its current financial risk profile as it proceeds with the Algar project, we could revise the outlook to negative. (New York Ratings Team)