S&P lowers Denbury

S&P said it lowered the corporate credit rating on Denbury Resources Inc. to SD (selective default) from CC.

The agency also said it lowered the ratings on its subordinated notes due 2021, 2022 and 2023 to D from CC.

The downgrades follow news that Denbury closed a privately negotiated agreement to exchange a portion of its senior subordinated notes due 2021, 2022, and 2023 for new second-lien notes and new common shares at a meaningful discount to par, S&P explained.

The company exchanged about $922 million principal amount of existing notes for about $531 million of new notes and 36.9 million shares of common equity. This represents a discount of about 27% to par based on a stock price of $3.92 as of May 10, the agency said.

The exchange is considered distressed given that investors will receive less than what was promised on the original securities, S&P said.

A significant deterioration in the company’s operating cash flow is expected in 2016 and 2017 due to weak commodity prices, the agency said.

The agency said the exchange, along with note repurchases done by the company in the first quarter of 2016, reduces the company’s $3.3 billion of debt as of year-end 2015 by about $488 million in aggregate, which improves financial leverage.

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