S&P Upgrades Stone Energy (SGY) to 'CCC-'; Outlook Negative
S&P Global Ratings said it raised its corporate credit rating on oil and gas exploration and production company Stone Energy Corp. (NYSE: SGY) to 'CCC-' from 'D'. The outlook is negative.
We also raised the issue-level rating on the company's senior unsecured debt to 'CCC-' from 'D'. The recovery rating is '3', indicating our expectation of meaningful (high end of the 50% to 70% range) recovery if a payment default occurs.
The 'CCC-' corporate credit rating reflects the risk that Stone could elect to file for Chapter 11 and/or restructure its debt within the next six months. We expect the borrowing base for the company's reserve-based lending facility to decrease in the fall, further pressuring liquidity on top of lower cash flows from operations. We also note that the company has an upcoming $300 million maturity in March 2017, and we believe the company would have trouble accessing capital markets to refinance it given current market conditions.
We assess Stone's liquidity as less than adequate. This reflects our expectation that cash sources will not cover cash uses by 1.2x over the next 12 months.
The negative outlook on Stone Energy reflects the likelihood it could file Chapter 11, default on its debt or announce a negotiated debt restructuring given its declining liquidity and the upcoming note maturity in 2017.
We could lower the rating if Stone defaults or enters into a restructuring under which investors receive less than what was promised on the original securities.
We could raise the rating if we believe that the company is unlikely to pursue a debt restructuring and that a default is unlikely with the next six months.