S&P Downgrades Seventy Seven Energy (SSE) to 'CC'; Outlook Negative

Standard & Poor's Ratings Services lowered its corporate credit rating on Seventy Seven Energy Inc. (NYSE: SSE) to 'CC' from 'CCC-'. The outlook is negative.

At the same time, we lowered our issue-level ratings on the company's secured term loan to 'CCC' from 'CCC+' and unsecured notes to 'CC' from 'CCC-'. The rating on the structurally subordinated unsecured notes remains 'C'. The recovery rating on the senior secured loans remains '1', indicating very high (90% to 100%) recovery in the case of a payment default. The recovery rating on the senior unsecured notes remains '3', indicating meaningful (50% to 70%; at the lower half of the range) recovery in the case of a payment default. The recovery rating on the subordinated notes remains '6', indicating negligible (0% to 10%) recovery in the case of a payment default.

"The downgrade follows SSE's announcement that it has entered into a restructuring support agreement with certain lenders of its incremental term supplement loan, currently representing 92% of the aggregate outstanding principal amount, and certain noteholders collectively owning or controlling in excess of 57.7% of the aggregate outstanding principal amount of the company's 6.625% senior unsecured notes due 2019," said Standard & Poor's credit analyst Kevin Kwok.

Pursuant to the agreement, the noteholders have agreed to support a deleveraging transaction under which the company will convert approximately $1.1 billion of outstanding notes to new common equity. The company intends to commence a prepackaged Chapter 11 filing on or before May 26 to implement the plan.

The outlook is negative, reflecting our assessment of the company's intention to commence a prepackaged Chapter 11 proceeding.

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