Moody’s downgrades Sheridan I

Moody's Investors Service said it downgraded each of Sheridan Investment Partners I, LLC's, Sheridan Production Partners I-A, LP's and Sheridan Production Partners I-M, LP's probability of default ratings to Ca-PD from Caa3-PD.

Concurrently, the agency affirmed Sheridan I's Caa3 corporate family ratings and Caa3 senior secured term loans ratings.

The outlook remains negative.

On July 18, Sheridan I amended its senior secured credit facilities to re-determine its borrowing base at $850 million, thereby creating a borrowing base deficiency of about $145 million. In addition, the amendment requires Sheridan I to make a mandatory repayment of $150 million by Dec. 15. Together, Sheridan I will be required to repay roughly $295 million of its loan facilities over the next six months to cure the borrowing base deficiency and be in compliance with the credit agreement, Moody’s said.

With the balance sheet cash and the cash flow from operations, the agency expects Sheridan to be able to repay less than $100 million of its loan facilities by December 15. The current commodity price environment makes it challenging to pursue asset sale opportunities thereby limiting Sheridan I's alternate liquidity generation opportunities. Sustained weakness in commodity prices will result in further erosion of Sheridan I's asset coverage and an unsustainable capital structure.

The Ca-PD probability of default rating reflects the significant short fall in the cash required to be in compliance and the heightened prospect of a default. The Caa3 corporate family rating reflects Moody's view of the potential overall recovery.

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