Moody's cuts MEG, rates loans B2

Moody's Investors Service said it lowered MEG Energy Corp.'s corporate family rating to B2 from B1 and its senior first secured term loan rating to B2 from B1.

The B2 rating applies to the proposed $300 million increase in the first-lien secured term loan.

Moody's also assigned a B2 rating to MEG's proposed first secured $150 million revolver, which ranks pari passu with the term loan. The outlook is stable.

The lowering of the corporate family rating to B2 reflects the substantial increase in debt to partially fund the phase 2B expansion, at a time when production and cash flow is still very low, having averaged approximately 4,500 barrels per day in October and November 2009 as the company ramps up phase 1 and 2 production. Production from these phases is not expected to reach design capacity of 25,000 bpd until late 2010 or early 2011, the agency said.

Moody's noted the rating favorably considers MEG's 50% ownership of the Access pipeline, which provides dedicated access to the flow of diluents from Edmonton to its SAGD operation and of dilbit back to Edmonton.

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