S&P Downgrades Hercules Offshore (HERO) to 'CCC-'; Outlook Remains Negative

Standard & Poor's Ratings Services today lowered its corporate credit rating on Hercules Offshore Inc. (Nasdaq: HERO) 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 the debt issue remains '3', indicating our expectation of meaningful (30% to 50%, higher end of the range) recovery in the event of a payment default.

"The rating action follows the company's disclosure that it has entered into a forbearance agreement with its lenders, and our belief that there is a high likelihood of default or restructuring over the next six months," said Standard & Poor's credit analyst Kevin Kwok. "During the forbearance period, the company will be unable to access the $200 million in escrow related to the final payment on the Hercules Highlander rig, which could potentially delay delivery of the new build and impact the company's contract for this rig," he added.

The outlook is negative, reflecting our belief that there is a high likelihood of default within the next six months, absent unanticipated significantly favorable changes in the issuer's circumstances.

We would lower the ratings if the company entered into a restructuring agreement or were unable to meet its debt service obligations.

We could consider a positive rating action if the company were able to resolve the compliance issue with the affirmative covenants.

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