Moody's assigns negative outlook to Encore Acquisition

Moody's Investors Service said it confirmed Encore Acquisition's Ba3 corporate family and probability-of-default ratings and B1 (LGD5, 81%) senior subordinated note rating.

The rating actions end the review for downgrade, and the outlook is negative.

The assigned rating reflects Moody's expectation that leverage will be slashed and that operating trends will stabilize. The agency noted that to keep its ratings, the company needs to lower leverage in the next 12 months and keep leverage low in subsequent acquisitions.

Moody's said it began the review for downgrade late last year because of the company's plans for sizable, fully debt-funded acquisitions. The company also saw a tough second half of 2006 for operating results, the agency said.

Ratings support includes a management team historically committed to conservative leverage, the lower geologic risk of Encore's mature properties, an expanded consolidated property base, a durable production base and expected reasonably supportive prices.

Ratings restraints include high leverage, the uncertainty of the company's changing capital structure and weak operating trends.

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