Constellation rating cut on suspended distribution

Constellation Energy Partners LLC saw its rating cut by an analyst on Tuesday after the company said it would suspend its cash distribution.

On Friday Constellation Energy Partners, an oil and gas company created by Baltimore-based Constellation Energy Group Inc., said that after a review with its lenders, it had reduced its borrowing base to $225 million, down from $265 million.

As of June 25 outstanding borrowings under the company's credit agreements totaled $220 million, leaving the company 98 percent drawn on its credit line. The terms of these agreements prevent the company from making distributions to unitholders if borrowings outstanding, net of available cash, exceed 90 percent of the borrowing base. As of June 25 the company had $10.2 million in available cash, leaving the company 93 percent drawn on its lines of credit, forcing the company to temporarily suspend its quarterly cash distribution to common and Class A unitholders.

Based on this news, Barclays Capital analyst Jeffrey Robertson downgraded the company's rating to "Underweight" from "Neutral."

"We expect the distribution to remain suspended until Constellation Energy Partners' liquidity is strengthened," said Robertson, noting that the company could generate enough cash to reduce borrowings below 90 percent of the base by the third quarter.

Shares of the company fell 4 cents to $2.45 in afternoon trading.