Moody's may downgrade Plains Exploration, upgrade Stone Energy

Moody's Investors Service said it placed Plains Exploration & Production Co.'s Ba2 corporate family and senior unsecured debt rating and Ba3 senior subordinated note rating under review for possible downgrade. Moody's also placed Stone Energy Corp.'s B2 corporate family rating and Caa1 senior subordinated note rating on review for upgrade.

These actions follow the companies' announced stock-for-stock merger, which places Stone Energy's equity market valuation in the range of $1.4 billion and enterprise value in the range of $1.9 billion, including the assumption of about $483 million of Stone Energy's debt.

While the merger affords considerably more reinvestment flexibility and potential within the merged property base, the merged business must first reverse the underperforming momentum of both property bases before mounting positive momentum, the agency said. Stone Energy has been especially challenged over the last few years, a situation that was exacerbated by a still shut-in major proportion of its production due to hurricane damage.

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