S&P downgrades Approach

S&P said it lowered the corporate credit rating on Approach Resources Inc. to CC from CCC+, along with the rating on its senior unsecured notes due in 2021 to CC from CCC.

The recovery rating is 5, indicating 10% to 30% expected default recovery.

The outlook is negative.

The downgrades follow news that Approach entered into a negotiated exchange agreement with Wilks Brothers LLC and SDW Investments LLC, entities owned by the Wilks Family Office, S&P explained.

The agreement will result in the exchange of $130.55 million principal amount of senior notes due 2021 for about 39.165 million new shares of common stock, representing an exchange ratio of 300 shares of common stock per $1,000 principal amount of senior notes, the agency said.

This transaction is viewed as a distressed exchange because at investors will receive less than originally promised at the close of the transaction, S&P said, and the ranking is altered to more junior in the capital structure.

The negative outlook reflects an expectation that the agency will lower the company’s corporate credit rating to SD (selective default) and the issue-level rating on the second-lien notes to D when the transaction closes, the agency said.

S&P said it then will review the ratings based on the new capital structure and consider an upgrade when there is more certainty that the company is no longer pursuing exchanges.

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