Moody's rates Energy XXI notes Caa2

Moody's Investors Service said it assigned Caa1 corporate family and probability-of-default ratings and an SGL-3 speculative grade liquidity rating to Energy XXI Gulf Coast, Inc. and a Caa2 (LGD5, 72%) rating to its proposed $700 million senior unsecured note offering.

The outlook is stable.

Simultaneously with the closing of the notes offering, Energy XXI will amend and restate its credit facility to increase the senior secured revolver capacity to $700 million from $300 million. Proceeds from the notes and the upsized revolver will then be used to fund the $419.5 million acquisition of Pogo Producing Co.'s shelf Gulf of Mexico assets, to retire a $325 million second-lien revolver and to refinance Energy XXI's existing senior secured revolver.

The agency said the Caa1 rating reflect Energy XXI's high leverage, small scale and operational, liquidity and event risks.

While the management team's extensive experience operating properties in the onshore Gulf Coast and Gulf of Mexico shelf lends support to the rating, Energy XXI will need strong operational execution, combined with supportive commodity prices and no adverse weather events, in order to manage its $980 million debt load and achieve competitive returns on its investments, Moody's added.

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