Moody's may downgrade EXCO

Moody's Investors Service said it placed EXCO Resources, Inc.'s B2 corporate family and B3 senior unsecured note ratings on review for downgrade.

This accompanies EXCO's pending all-debt funded $1.2 billion acquisition of Winchester Energy Company, Ltd., an oil and gas exploration and production subsidiary of Progress Energy, Inc., to be acquired through EXCO's newly formed subsidiary.

EXCO hopes to eventually reduce its pro-forma leverage by organizing the subsidiary as a master limited partnership and attempting to take the subsidiary public during first quarter of 2007. With pro-forma consolidated debt in the range of $2 billion, pro-forma consolidated leverage would be extreme and potential substantial de-leveraging is not expected until first quarter 2007 at the earliest, the agency said.

The ratings are supported by a sound price outlook and substantial hedging at favorable prices, seasoned management, EXCO's reserve scale and onshore diversification and large lower-risk drilling inventory.

Moody's said the ratings are restrained by uncertainty concerning the credit profile post-completion of the IPO and post-acquisition performance, high pro-forma leverage prior to an IPO, its small production base and high cost structure.

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