Moody's downgrades Stone Energy

Moody's Investors Service said it lowered Stone Energy Corp.'s corporate family rating to B2 from B1 and its senior subordinated notes to Caa1 from B3. The ratings are under review for further possible downgrade. The SGL-3 rating was affirmed.

The agency said the downgrade largely reflects Stone Energy's announcement of a second significant negative reserve revision for fiscal 2005 which, when combined with the first announcement, results in total reserve reduction of nearly 30% from fiscal year 2004 levels despite the company's indication that it replaced 106% of 2005 production. Additionally, production remains significantly lower due to shut-in production related to hurricanes Rita and Katrina and the company estimates that overall daily production will remain essentially flat in 2006 compared to 2005 despite spending about $500 million in 2005 (including acquisitions) and projected spending of $360 million in 2006.

The ratings are placed under review for further downgrade pending resolution of the company's announcement that it received a notice of non-compliance from 25% of the holders of its 6¾% senior subordinated notes, Moody's said. The notice is based on the delay in the filing of Stone Energy's third-quarter financial statements, which the company does not believe is an actual default under the notes indenture.

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