Eclipse Resources (ECR) CFR Downgraded to 'Caa2' by Moody's

Moody's Investors Service (Moody's) downgraded Eclipse Resources Corporation's (NYSE: ECR)(Eclipse) Corporate Family Rating (CFR) to Caa2 from B3, Probability of Default Rating (PDR) to Caa2-PD from B3-PD, and senior unsecured notes rating to Caa2 from Caa1. At the same time, Moody's affirmed Eclipse's Speculative Grade Liquidity Rating at SGL-3. The rating outlook was changed to negative from stable.

"The downgrade reflects Moody's expectation that low natural gas prices and significant production curtailments will drive down Eclipse's cash flow such that it may not cover interest expense," noted John Thieroff, Moody's VP -- Senior Analyst. "Eclipse's high leverage and interest burden call into question the sustainability of its capital structure and whether or not it will need to restructure in the near term, given our expectation for low oil and gas prices through 2018."

Issuer: Eclipse Resources Corp.

Ratings Downgraded:

.... Corporate Family Rating -- Caa2 from B3

. Probability of Default Rating -- Caa2-PD from B3-PD

. Senior Unsecured Rating -- Caa2 (LGD4) from Caa1 (LGD4)

Outlook: Negative

Ratings Affirmed:

.... Speculative Grade Liquidity Rating, affirmed at SGL-3

RATINGS RATIONALE

The Caa2 CFR reflects Eclipse's high leverage and interest burden, small scale, concentrated production in the Utica and Marcellus Shale plays, and significant exposure to natural gas (~68%). Eclipse's rating also suffers from its weak cash margins and leveraged full-cycle ratio caused by its exposure to low natural gas prices. The company's rating is further constrained by its decision to cut capital spending sharply in 2016 which, while necessary to preserve liquidity during an extended commodity price downturn, when combined with production curtailments will lead to materially reduced production and cash flow in 2016. Support for the rating is provided by natural gas price hedges on more than 80% of expected 2016 production at an average gas price above $3 per mcf and Eclipse's significant balance sheet cash.

The SGL-3 Speculative Grade Liquidity Rating reflects our expectation that Eclipse should maintain adequate liquidity through 2016. At December 31, 2015, the company had $184 million in cash on its balance sheet and $97 million of availability under its secured revolving credit facility, which matures in 2018. Eclipse's borrowing base under its revolver is $125 million and will next be redetermined in April 2016. The credit facility's EBITDAX/Interest covenant requires 1.5x coverage through the first three quarters of 2016 and then increases to 2.25x. Based on our projections, compliance in Q4 2016 is unlikely. Given our expectation of a significant cash cushion at year-end 2016, Eclipse would still be viewed as having adequate liquidity if it were unable to access its revolver for a short period of time. Other than the revolver, Eclipse's only debt maturity is its senior unsecured notes in 2023.

The negative outlook reflects the company's dim prospects to sustain itself through 2017 as capitalized, given weak oil and natural gas prices, reduced production levels and very limited commodity price hedging after 2016. The rating could be downgraded if the company's liquidity falls below $50 million. Although unlikely in 2016, the rating could be upgraded if the company maintains retained cash flow-to-debt above 10% on a sustained basis.

The principal methodology used in these ratings was Global Independent Exploration and Production Industry published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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