S&P Downgrades Bill Barrett (BBG) to 'SD' Amid Debt Exchange

S&P Global Ratings lowered its corporate credit rating on Bill Barrett Corp. (NYSE: BBG) to 'SD' from 'B-'. At the same time, we lowered the ratings on the company's 7.625% senior notes due 2019 to 'D' from 'CCC'. The rating on the 7% senior unsecured notes due 2022 remains 'CCC'.

"The downgrade reflects our assessment that the debt for equity exchange on Bill Barrett's 7.625% senior unsecured notes was a distressed exchange based on the holders receiving less than face value, and our view that we expect a significant deterioration in the company's operating cash flow in 2016 and 2017 due to weak commodity prices," said S&P Global Ratings credit analyst Kevin Kwok. "In our opinion, there is a realistic possibility of a covenant breach due to the inability of maintaining the minimum interest coverage ratio of 2.5x within the next one to two years," he added.

On May 31, 2016, Bill Barrett Corp. entered into an exchange agreement with an unaffiliated third-party holding company for a portion of its 7.625% senior unsecured notes due 2019. The company agreed to exchange approximately $84.7 million of the $400 million notes for 10 million shares of its common stock, which amounts to almost 85% of par based on the closing price of $7.15 on May 31, 2016.

We expect to review the corporate credit and issue-level ratings in the next few days. Our analysis will incorporate the challenging operating environment for oil and gas companies at current commodity prices and Bill Barrett's high leverage.

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