Moody's downgrades Sanchez Energy

Moody's Investors Service said it downgraded Sanchez Energy Corp.'s corporate family rating to Caa1 from B3, along with its B3-PD probability of default rating to Caa1-PD.

The agency also downgraded its senior unsecured notes rating to Caa2 from Caa1 and first-lien notes to B2 from B1.

Sanchez Energy's SGL-3 speculative grade liquidity rating also was downgraded to SGL-4.

The outlook also was changed to negative from stable.

The downgrades reflect the company's stubbornly high debt levels and disappointing production results attributable to its $1.05 billion acquisition of additional Eagle Ford Shale acreage in March 2017, which has pressured its liquidity, Moody's said.

These factors prompted concerns that the company's capital structure as presently constituted may be unsustainable, the agency said.

Even as production growth has stagnated, a large portion of the cash flow expected to be generated by the acquired acreage is unavailable to service Sanchez's existing debt by virtue of the complex structure employed to finance the acquisition, Moody's explained.

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