(The following statement was released by the rating agency)
-- The special committee of the board of directors of U.S.-based EXCO
Resources Inc. has terminated its review of strategic alternatives to maximize
shareholder value, including rejecting Chairman and CEO Doug Miller's buyout
-- We are affirming our 'BB-' corporate credit rating and 'B' issue rating
on EXCO Resources (XCO.N) Inc. (EXCO) and its unsecured debt, respectively. We
are removing all ratings from CreditWatch negative.
-- The outlook is stable, reflecting our expectation that EXCO will see
solid production and reserve growth over the next 12 months and that credit
metrics will not stray far from current measures.
July 18 - Standard & Poor's Ratings Services said today it affirmed its
'BB-' corporate credit rating and 'B' issue rating on Dallas-based EXCO and its
unsecured debt, respectively, and removed all ratings from CreditWatch with
negative implications, where we had placed them on Nov. 2, 2010.
The outlook is stable.
"The rating actions follow the special committee of the board of directors
of EXCO Resources Inc.'s announcement that it had concluded its review of
strategic alternatives to maximize shareholder value, including assessing EXCO
Chairman and CEO Doug Miller's buyout proposal," said Standard & Poor's credit
analyst Patrick Y. Lee. The original buyout proposal contemplated acquisition
of all outstanding EXCO shares for $20.50 per share in cash, but was later
revised to 81% of EXCO shares at $18.50 per share, of which $13.52 per share
would be in cash and approximately $4.98 per share in stated value would be in
post-transaction EXCO equity.
The special committee rejected Mr. Miller's revised proposal and terminated
the strategic alternatives review process after concluding that no other
proposals would likely be received in the near term. The ratings on EXCO
reflect what we consider to be the company's aggressive financial risk profile
and weak business risk profile. We see leverage reaching 3x by year-end as the
company outspends operating cash flow and returns to its historically
acquisitive growth strategy. Although we expect EXCO's midsize reserve base to
experience solid growth and production from its promising shale plays, the
company's focus on natural gas leaves it susceptible to the weak natural gas
pricing environment and unable to generate sufficient operating cash flow to
offset the increased capital spending.
The stable outlook is based on EXCO's promising development efforts that
should maintain the company's financial performance and keep credit metrics in
line with the 'BB-' rating. We could take a negative rating action if poor
natural gas prices and weak production results suggest a likely deterioration
in financial performance, including leverage of more than 3.5x. In addition to
soft natural gas market conditions, the company's moderate size and limited
diversity of operations (compounded by a very aggressive financial policy)
suggest minimal prospects in the near term for a positive rating action.