S&P puts Chaparral on developing watch

Standard & Poor's said it revised the CreditWatch implications on Chaparral Energy Inc. (B) to developing from positive, where it was placed on July 15 following the announcement of the company's proposed merger with Edge Petroleum Corp.

The CreditWatch revision follows the announcement that Edge postponed the shareholder vote on the merger until Dec. 4 while Chaparral continues to seek the financing necessary to complete the merger. The agency said the revision reflects its concerns about Chaparral's liquidity if the merger is not successfully completed.

The transaction is contingent on a successful refinancing of Chaparral's existing $600 million borrowing-based revolver to $1 billion and a $150 million preferred equity infusion from private equity firm Magnetar Financial LLC. Because of limited access to capital markets, S&P believes the company will have difficulty increasing its facility and achieving the minimum pro forma availability of $325 million required by Magnetar Financial.

In addition, to complete the merger the NYSE must approve the listing of new shares of Chaparral common stock, which requires a minimum price of $4.00 per share. However, the agency said that based on Edge's Oct. 23 closing stock price of $0.86, the combined company may have trouble meeting the threshold.

A positive rating action is still possible if Chaparral successfully closes the merger with Edge, which will improve its liquidity profile and financial measures, S&P said.

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