Moody's might downgrade Eagle Rock

Moody's Investors Service said it placed Eagle Rock Energy Partners, LP's B1 corporate family rating, B1-PD probability of default rating and B3 senior notes rating on review for downgrade following the signing of a definitive agreement to contribute its midstream business to Regency Energy Partners LP (Ba3/positive).

Eagle Rock will receive total consideration of up to $1.33 billion, subject to certain closing conditions, consisting of $200 million of newly issued Regency common units and a combination of cash and an exchange of Eagle Rock's outstanding senior notes. Eagle Rock intends to use the cash proceeds to pay down borrowings under its revolving credit facility.

The agency said the review Eagle Rock's increased business risk and reduced cash flow profile associated with its transition to a pure-play upstream exploration and production master limited partnership with a concentrated asset base, small production scale and natural gas-weighted reserve base.

Meanwhile, Eagle Rock's B1 corporate family rating reflects the partnership's large scale compared to peers as well as the business diversification in its operations and successful migration of its midstream business to a more fee-based/fixed-recovery model through new and amended contracts and opportunistic expansion projects, Moody's said.

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