S&P cuts Chaparral Energy

S&P said it lowered its rating for Chaparral Energy Inc. to CCC- from CCC+. Also, the agency lowered the rating on the company's unsecured notes to C from CCC. The recovery rating was revised to 6 from 5, reflecting an expectation of negligible (0%-10%, rounded estimate: 0%) recovery in the event of a payment default.

“The downgrade primarily reflects Chaparral's decision to suddenly draw an additional $90 million on its revolving credit facility in early April (bringing total outstandings to $250 million), which created a $75 million borrowing base deficiency after lenders reduced the company's borrowing base to $175 million from $325 million,” said S&P in a press release.

“To our understanding, management is weighing its options regarding the deficiency, which may result in an event of default if it is not addressed in a timely manner. Furthermore, we believe the company may be consulting with financial advisors on strategic alternatives,” the agency said.

S&P said that combined with current trading levels of the company’s notes, it sees a high probability of restructuring within the next six months.

The outlook is negative.

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