Quicksilver Resources (KWK) Cut to 'CCC-' by S&P

Standard & Poor's Ratings Services said it lowered its corporate credit rating on Quicksilver Resources (NYSE: KWK) to 'CCC-' from 'CCC+'. The outlook is negative.

At the same time, we lowered the issue-level rating on the company's secured debt to 'CCC-' from 'CCC+'. The recovery rating on this debt is '4', indicating our expectation for average (30% to 50%) recovery to creditors if a payment default occurs.

We also lowered the issue-level rating on Quicksilver's unsecured and subordinated debt to 'C' from 'CCC-'. The recovery rating on this debt is '6', indicating our expectation for negligible (0% to 10%) recovery to creditors if a payment default occurs.

"The downgrade reflects our view that Quicksilver could undertake a distressed exchange for its $350 million subordinated notes due 2016 within the next six months," said Standard & Poor's credit analyst Carin Dehne-Kiley.

Currently, if more than $100 million of the subordinated debt remains outstanding on Oct. 1, 2015, any amounts outstanding on Quicksilver's first-lien credit facilities come due on Oct. 1, 2015, and the company's second lien debt would become due on Jan. 1, 2016. As of June 30, 2014, Quicksilver had $35 million outstanding on its combined credit facilities (with a borrowing base of $325 million), and $825 million of second-lien debt. Quicksilver recently hired a strategic alternatives officer to assist the company in exploring, evaluating, and implementing strategic and tactical initiatives. We believe the company will take whatever steps it can to address the subordinated debt, including a potential distressed exchange.

We consider an exchange offer as distressed, or tantamount to default, if (1) the offer, in our view, implies the investor will receive less value than the promise of the original securities and (2) the offer, in our view, is distressed rather than purely opportunistic. Per our criteria, we would value an offer at less than the original promise if the amount offered is less than the original par amount, the interest rate is lower than the original yield, or if the new securities' maturities extend beyond the original, among other factors, without offsetting compensation.

Our ratings on Quicksilver incorporate our assessment of the company's "vulnerable" business risk and "highly leveraged" financial risk and the application of our 'CCC' criteria in light of what we view as the company's unsustainable leverage and "weak" liquidity.

The negative outlook reflects the possibility that Quicksilver could undertake a distressed exchange over the next six months, absent a potential strategic transaction or capital infusion.

We could lower the rating if Quicksilver announced its intention to undertake a distressed exchange, or if we believed a default was inevitable.

We could raise the rating if Quicksilver were able to extend its first- and second-lien debt maturities, which would most likely occur if the company were able to successfully complete a strategic transaction and pay down or restructure its subordinated debt.

You May Also Be Interested In

• SailPoint Technologies Holdings (SAIL) PT Raised to $25 by Cantor Fitzgerald on Solid Checks
• UBS Downgrades AREIT Inc (AREIT:PM) to Neutral
• Callaway Golf (CALY) PT Raised to $20 at Truist Securities