Investing.com -- On May 2, 2025, Moody’s Ratings upgraded the Corporate Family Rating (CFR) of Viper Energy (NASDAQ: VNOM ), Inc. to Ba1 from Ba2, and the Probability of Default Rating (PDR) to Ba1-PD from Ba2-PD. The firm also upgraded the rating of Viper’s backed senior unsecured notes to Ba2 from Ba3, and the Speculative Grade Liquidity rating to SGL-1 from SGL-2. The rating outlook for Viper is now stable. Prior to these changes, the ratings were under review for a possible upgrade.

This upgrade concludes Moody’s ratings review that began on January 31, 2025, following Viper’s agreement to acquire two assets worth approximately $4.6 billion. The larger transaction, an asset dropdown from Diamondback (NASDAQ: FANG ) Energy, Inc., closed on May 1, 2025, following the earlier close of the Morita Ranch acquisition on February 14, 2025. Viper financed these acquisitions with cash on hand and newly issued equity, with both deals effective as of January 1, 2025.

Sajjad Alam, a Vice President at Moody’s Ratings, stated the acquisitions will significantly increase Viper’s production and free cash flow, reduce its financial leverage, and provide better asset coverage for creditors.

Viper’s new Ba1 CFR is supported by its substantial mineral and royalty interests, which generate strong margins and free cash flow. Other supporting factors include low operating costs, no capital expenditure requirements, oil-weighted assets in the Permian Basin operated by financially strong E&P companies, and a successful growth history. Viper’s credit profile also reflects the management’s history of conservative financial policies.

However, Viper’s credit profile is constrained by its smaller production and cash flow base compared to similarly rated E&Ps, dependence on E&P operators for its non-operated passive mineral and royalty interests, the need for periodic acquisitions to maintain production and reserves, and a high distribution business model.

The ratings of Viper’s senior unsecured notes are one notch below its CFR due to their subordinated position to the secured borrowing base revolving credit facility in the capital structure.

Moody’s expects Viper to maintain very good liquidity through 2026, reflecting in the SGL-1 rating. As of December 31, 2024, Viper had $261 million outstanding on the revolving credit facility, which had $1.25 billion in elected commitments. The revolving credit facility expires on September 22, 2028, and Viper has no bond maturity until November 2027.

The stable outlook reflects Viper’s low leverage and ability to generate free cash flow at low oil prices. Future upgrades or downgrades of Viper’s ratings could be influenced by Diamondback’s ratings, Viper’s scale, leverage metrics, and its importance to Diamondback’s operations. A downgrade could occur if Viper executes a large debt funded acquisition or experiences a sharp and sustained decline in production.

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