Moody's downgrades Energy Partners

Moody's Investors Service said it downgraded Energy Partners, Ltd.'s corporate family and probability-of-default ratings to B3 from B2 following the conclusion of the company's exploration of strategic alternatives.

The senior unsecured notes were affirmed at B3 (LGD5, 73%), reflecting the planned cash tender offer for the notes.

The ratings were removed from review direction uncertain, and the outlook is negative.

The company's strategic initiative entails repurchasing $200 million of common share, authorization of an additional $50 million in share purchases over the next year, a cash tender offer for the company's $150 million senior notes, funded with bank debt, and the sale of certain properties.

The agency said the downgrade reflects the shift in the company's risk profile as reflected by the substantial return of capital to shareholders through share purchases and the corresponding increase in financial leverage on an asset base that Moody's does not consider having a high degree of debt capacity. The downgrade also reflects the company's rising cost structure and weak capital productivity, which, in addition to $51.5 million in merger termination fees and $13 million in legal and financial advisory fees, has pressured current leverage levels to a range considered high for the prior rating category.

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