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Moody's downgrades Azure Midstream, questioning viability of drop-down strategy

Moody's on April 13 downgraded Azure Midstream Energy LLC's corporate family and probability-of-defaultratings, as well as its senior secured term loan and senior secured revolving creditfacility ratings.

The rating agency also withdrew the company's speculative-gradeliquidity rating and retained the negative outlook for Azure Midstream.

Citing financialdistress at the company's MLP, AzureMidstream Partners LP, Moody's is uncertain that Azure Midstream willbe able to execute its drop-down strategy,which was expected to be used for term loan repayment.

The company's corporate family rating was revised to Caa2from B3, the probability-of-default rating to Caa2-PD from Caa1-PD, the senior securedterm loan rating to Caa2 from B3 and the senior secured revolving credit facilityrating to B1 from Ba3.

Moody's also expects Azure's throughput volumes to fallbelow expected levels in the second half of 2016 and through 2017 as drilling activityin its dedicated acreage is reduced. This would be further aggravated by ill timingof payments related to throughput deficiencies, which could negatively affect liquidityin the second half of 2016, Moody's said.