Moody's confirms EXCO, cuts notes to Caa1

Moody's Investors Service said it confirmed EXCO Resources, Inc.'s B2 corporate family and probability-of-default ratings, and lowered the senior unsecured note rating to Caa1 (LGD5, 84%) from B3 (LGD5, 77%).

A negative outlook has been assigned pending execution of an initial public offering of its planned master limited partnership and confirmation that operating and price trends would support the B2 rating if the IPO is not executed.

The confirmation is supported by greater operating and funding flexibility from its increased scale and diversification, by adequate cash flow and liquidity arising from hedged natural gas prices and substantial undrawn bank revolver capacity, the agency said. The rating is also supported by the prospect of a potential de-leveraging IPO in the first quarter of 2008, Fitch said.

The B2 corporate family rating is supported by seasoned management that is, while aggressive and strategically active, likely to conduct the firm in a manner that adequately weighs the risks of oil and natural gas price volatility and further acquisitions at its current highly leveraged state, the agency said.

The negative outlook reflects the potential problems if EXCO cannot de-leverage, Fitch said.

These actions conclude a review for downgrade begun last year upon the first of EXCO's series of 2006 through 2007 leveraging acquisitions, the agency said.

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