S&P Affirms Vanguard Natural Resources (VNR) at 'B+'; Outlook Stable

Standard & Poor's Ratings Services affirmed its 'B+' rating on Vanguard Natural Resources (Nasdaq: VNR). The outlook is stable.

While Vanguard shares some master-limited partnership (MLP) characteristics, we determined that the November 2013 general corporate methodology criteria apply.

"The ratings on Vanguard Natural Resources reflect our assessment of the company's 'fair' business risk and 'aggressive' financial risk," said Standard & Poor's credit analyst Marc Bromberg. "We consider the company's liquidity to be 'adequate'," said Mr. Bromberg.

The outlook is stable because we do not expect to raise or lower the rating on Vanguard Natural Resources LLC during the next 12 months. We expect that Vanguard will fund its acquisitions prudently such that debt generally does not represent more than 50% of the acquisition cost. We also expect the company to hedge nearly all of its future production for a multiyear period. If this occurs, we expect run rate debt to EBITDA of about 3.5x, which we consider to be appropriate for the current rating.

We could lower the rating if we believe that run rate debt to EBITDA leverage will breach 4.25x. This scenario could occur if Vanguard funds acquisitions such that debt represents more than 50% of the acquisition cost and if production fails to meet our expectations.

We consider an upgrade unlikely based on our assessment of the business risk profile, including its MLP-like strategy and modest internal growth prospects.

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