S&P Downgrades Rex Energy (REXX) to 'CCC' Amid Move to Approve Franklin Resources Transaction

Standard & Poor's Ratings Services said it lowered its corporate credit rating on Rex Energy Corp. (Nasdaq: REXX) to 'CCC-' from 'B-'. The outlook is negative. We also lowered the issue-level rating on the company's senior unsecured notes to 'CC' from 'CCC+'. The recovery rating on the senior unsecured notes is unchanged at '5', and indicates "modest" (10%-30%; higher half of the range) recovery if a default occurs.

The downgrade follows Rex's announcement that it has scheduled a special meeting of stockholders on Jan. 11, 2016, to gain authorization and approval to negotiate a transaction with Franklin Resources Inc., which may involve the issuance of additional equity or debt securities, or restructuring or refinancing of existing debt, or a combination of these. Franklin, which holds positions in the company's senior unsecured debt, is considered an "interested stockkholder" with more than 15% of the company's outstanding voting stock. Currently, Delaware corporate law prohibits Rex from including Franklin in any transaction unless two-thirds of common shareholders approve such a transaction.

"Although Rex has stated any deal not involving Franklin would be less effective at achieving its goals, we feel a restructuring or exchange would still be possible with other potential counterparties," said Standard & Poor's credit analyst Aaron Mclean.

We would view any transaction as distressed if investors receive less value than what was promised on the original securities when the transaction closes. In our opinion, the likelihood that a potential transaction will qualify as distressed is high based on current market indicators that include the value of Rex's existing senior unsecured notes.

The negative outlook reflects the increased likelihood that Rex may pursue a debt exchange or capital restructuring that we view as distressed and could result in lower ratings on the company and its debt.

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