S&P rates Carrizo notes B

Standard & Poor's said it assigned its B issue-level rating to Carrizo Oil & Gas Inc.'s proposed $600 million senior unsecured notes due 2023.

The recovery rating on the notes is 5, indicating an expectation of modest (10% to 30%; lower half of the range) recovery in the event of a payment default.

The B+ corporate credit rating and stable outlook are unaffected.

Carrizo intends to use the net proceeds to fund the redemption of its tendered 8 5/8% senior unsecured notes with a B issue-level rating due 2018, to reduce borrowings outstanding under its revolving credit facility and for general corporate purposes.

S&P said the ratings continue to reflect its view of Carrizo’s "weak" business risk and "significant" financial risk. These assessments reflect Carrizo's participation in the highly cyclical and capital intensive exploration and production industry and the company's modest reserve and production size, partially offset by its solid profitability.

The ratings also reflect the agency’s expectation that operating cash flows will weaken over the next two years due to low commodity prices, although we expect credit metrics to remain adequate for the rating.

S&P applies a downward adjustment of one notch for comparable rating analysis due to Carrizo's smaller proved reserves and production base relative to peers rated BB-.

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