Moody's Downgrades EV Energy Partners (EVEP) CFR to 'B2'; Outlook Lowered to Negative

Moody's Investors Service (Moody's) downgraded EV Energy Partners, L.P.'s (Nasdaq: EVEP) Corporate Family Rating (CFR) to B2 from B1, its Probability of Default Rating to B2-PD from B1-PD, and its senior unsecured notes rating to Caa1 from B3. At the same time, Moody's affirmed EVEP's Speculative Grade Liquidity Rating at SGL-3. The rating outlook was changed to negative from stable.

"The downgrade reflects our expectation that EVEP's cash flow metrics will continue to deteriorate given reduced hedge prices and volumes and our view of oil and natural gas prices through at least 2016," commented John Thieroff, Moody's Vice President. "The negative outlook reflects the challenges EVEP faces as an upstream master limited partnership with a high reliance on acquisitions to replace production and to balance a market-acceptable distribution with capex sufficient to sustain production without increasing leverage."

Issuer: EV Energy Partners, L.P.

Ratings downgraded:

.... Corporate Family Rating (Local Currency), Downgraded to B2 from B1

.... Probability of Default Rating, Downgraded to B2-PD from B1-PD

.... Senior Unsecured Notes, Downgraded to Caa1 (LGD5) from B3 (LGD5)

Ratings affirmed:

.... Speculative Grade Liquidity Rating (SGL), Affirmed SGL-3

Outlook Actions:

. Outlook Changed to Negative from Stable

RATINGS RATIONALE

The B2 Corporate Family Rating (CFR) reflects EVEP's limited scale upstream operations, natural gas-weighted production and reserves, and its MLP structure which requires high distributions and periodic acquisitions. The rating is supported by EVEP's low decline mature wells, high proportion of proved developed reserves (87% pro forma for the October 2015 acquisition), modestly diversified operations and a meaningful level of hedging for its 2016 production. To cope with the sharp decline in commodity prices and marshal liquidity, EVEP has sold assets, slashed distributions and reduced capex since late 2014. Our ratings also consider the value in EVEP's 173,000 net acres in the Utica Shale.

The SGL-3 Speculative Grade Liquidity Rating reflects our expectation that the partnership should maintain adequate liquidity through 2016. At November 9, 2015, EVEP had slightly more than $425 million of liquidity, primarily from availability under its secured revolving credit facility and augmented by cash on its balance sheet. EVEP's borrowing base under its revolver is $625 million and will next be redetermined in April 2016. The credit facility was amended in October 2015 to provide EVEP relief from its total debt/EBITDAX financial covenant; through 2016 the partnership must maintain secured debt to EBITDAX below 3.0x, which we expect EVEP to meet. Compliance under the total debt to EBITDAX will resume in the first quarter of 2017 with the covenant level set at 5.5x for the first two quarters, reducing to 5.25x thereafter. We project EVEP's compliance with the total debt to EBITDAX in 2017 as questionable. EVEP's next debt maturity is on its senior notes, which are due in 2019.

EVEP's senior unsecured notes are rated Caa1. Their subordinate position relative to the $625 million secured borrowing base revolving credit facility's priority claim to substantially all of the partnership's assets, results in the notes being rated two notches below the B2 CFR under Moody's Loss Given Default Methodology.

The negative outlook reflects concerns that reduced cash flow in 2016 could cause leverage to spike, particularly if distributions are kept at a level that requires borrowing under the partnership's revolver. Ratings could be downgraded if distributions are debt funded or EBITDAX to interest coverage appears likely to fall below 2x. Although unlikely in 2016, ratings could be upgraded if EVEP is able to grow production and maintain a leveraged full-cycle cash flow above 1x without increasing its leverage. .

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