Moody's rates Encore Acquisition notes B2

Moody's Investors Service said it assigned a B2 rating to Encore Acquisition's $300 million 6%10-year senior subordinated notes.

About $169 million of note proceeds will fund a tender and transaction costs for the company's $150 million 8.375% senior subordinated notes, while the remaining proceeds will be used to repay most of the recent $140 million in borrowings under the company's pro forma $450 million borrowing base under its senior secured bank revolver.

Moody's said the ratings are supported by Encore's steady sequential quarter production gains to date and Moody's expectation for second-half 2005 production growth; acceptable leverage on proven developed reserves relative to its ratings, scale, and diversification; a very supportive price environment; a durable 12.4 year proven developed reserve life, and seasoned management and operating team.

The ratings are restrained by a need to reflect Encore's heavy capital spending mode, requiring additional borrowings under its secured revolver; debt-funded acquisitive method of growth; and rising operating costs.

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