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Rating Action:

Moody's downgrades EXXI's CFR to Caa3 and PDR to Caa3-PD/LD; negative outlook

22 Oct 2015

New York, October 22, 2015 -- Moody's Investors Service downgraded Energy XXI Gulf Coast, Inc.'s (EXXI) Corporate Family Rating (CFR) to Caa3 from Caa2, its Probability of Default Rating to Caa3-PD/LD from Caa2-PD, its second lien secured notes rating to Caa1 from B2, and its senior unsecured notes rating to Ca from Caa3. EPL Oil & Gas, Inc. is EXXI's wholly-owned subsidiary, and its senior unsecured notes were also downgraded from Caa3 to Ca. Moody's also lowered EXXI's Speculative Grade Liquidity Rating to SGL-4 from SGL-3. The ratings outlook is negative.

EXXI has repurchased some of its unsecured notes in the market, and as of September 25, 2015, the company had retired over $425 million in face value of bonds. Moody's considers EXXI's repurchase of unsecured debt at a discount to par as a distressed exchange for its senior unsecured debt, which Moody's views as a default. As noted above, Moody's appended the Caa3-PD PDR with an "/LD" designation indicating limited default, which will be removed three business days thereafter.

Rating Actions:

Issuer: Energy XXI Gulf Coast, Inc.

. Corporate Family Rating, Downgraded to Caa3 from Caa2

. Probability of Default Rating, Downgraded to Caa3-PD/LD from Caa2-PD

. Speculative Grade Liquidity Rating, Lowered to SGL-4 from SGL-3

. Senior secured second lien notes to Caa1 (LGD2) from B2 (LGD2)

. Senior unsecured notes to Ca (LGD5) from Caa3 (LGD4)

EPL Oil & Gas, Inc.

. Senior unsecured notes to Ca (LGD5) from Caa3 (LGD4)

Outlook Actions:

Energy XXI Gulf Coast Inc.

....Outlook: Changed to Negative from Stable

EPL Oil & Gas, Inc.

....Outlook: Changed to Negative from Stable

RATINGS RATIONALE

EXXI's Caa3 CFR reflects high risk for the company's business profile because of elevated leverage and limited financial flexibility in a weak commodity price environment. EXXI's rating also reflects the high risk that EXXI will not have the ability to grow out of its weak leverage metrics as reduced capital expenditures and expected low commodity prices impact its production and EBITDA, while its high interest expense and abandonment costs limit cash flow.

EXXI's SGL-4 Speculative Grade Liquidity Rating reflects its weak liquidity profile through 2016. As of September 25, 2015 and including the effect of over $425 million in face value of bond purchases, EXXI had available liquidity of roughly $600 million, including $124 million available under its $500 million borrowing base revolving credit facility. The credit facility matures in April 2018. However, EXXI could make additional bond repurchases using its cash balances. As EXXI continues to outspend its cash flow, EXXI's liquidity will shrink through 2016. Further, as EBITDA contracts, we expect EXXI to have difficulty in complying with its financial covenants and will need to seek covenant relief from its lenders.

EXXI's and EPL's notes are rated Ca, which is one notch below EXXI's Caa3 CFR. This notching reflects the priority claim given to the senior secured credit facility and second lien notes. The second lien notes are rated two notches above the company's CFR reflecting its priority claim over EXXI's unsecured notes.

The company's negative ratings outlook reflects its still highly levered capital structure and the likely need to re-negotiate its financial covenants. The outlook could return to stable if the company makes sufficient progress in fixing its still untenable capital structure.

A downgrade is possible if liquidity deteriorates and falls below $200 million, or the company is unable to re-negotiate its financial covenants. An upgrade will not be considered until retained cash flow to debt exceeds 5% and the company continues to maintain adequate liquidity.

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.

Energy XXI Gulf Coast, Inc. (EXXI) is an indirect wholly-owned subsidiary of publicly listed Energy XXI Limited and is engaged in the exploration and production of oil, natural gas liquids and natural gas in the shallow and deepwater of the US Gulf of Mexico. EPL Oil & Gas, Inc. is a wholly-owned subsidiary of EXXI.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Amol Joshi, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades EXXI's CFR to Caa3 and PDR to Caa3-PD/LD; negative outlook
No Related Data.
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