Moody’s drops SandRidge

Moody's Investors Service said it downgraded SandRidge Energy, Inc.'s corporate family rating to Caa2 from Caa1, probability of default rating to Caa2-PD/LD from Caa1-PD, second-lien secured notes rating to B2 from B1 and senior unsecured rating to Caa3 from Caa2.

The company's SGL-2 speculative grade liquidity rating was affirmed.

The outlook is stable.

These actions are in response to SandRidge's privately negotiated transaction to repurchase $250 million of existing senior unsecured notes for $94.5 million in cash at an average price of 38% of par. In addition, the company announced that it will exchange an additional $275 million of senior unsecured notes into new convertible notes.

Moody's said it considers SandRidge's repurchase of unsecured debt at a discount to par and its exchange of unsecured debt for new convertible notes as a distressed exchange for its senior unsecured debt, which Moody's views as a default. As noted above, the agency appended the Caa2-PD PDR with an "/LD" designation indicating limited default, which will be removed three business days thereafter.

"The downgrade of SandRidge's ratings reflects the company's weak cash flow metrics and potentially unsustainable capital structure," Moody's vice president Amol Joshi said in a news release.

"With weak commodity prices exacerbating the impact of its relatively high interest expense and operating cost structure on cash flow, the risk of further debt restructuring has increased."

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