S&P downgrades RGL Reservoir, loans

Standard & Poor's said it lowered its long-term corporate credit rating on RGL Reservoir Management Inc. to CCC+ from B and removed the rating from CreditWatch with negative implications, where it had been placed May 20.

The outlook is negative.

At the same time, the agency lowered its issue-level rating on the company's $301 million first-lien term loan (currently $299.5 million; the facility also includes a $75 million revolver) to CCC from B. The recovery rating was revised to 5 from 3, indicating an expectation for modest (10% to 30%, at the upper half of the range) recovery in the event of a default.

S&P also lowered its issue-level ratings on RGL's C$140 million second-lien term loan to CCC from CCC+. The 6 recovery rating is unchanged, indicating an expectation for negligible (0% to 10%) recovery in the event of a default.

S&P said the downgrade reflects its expectations that RGL's annual EBITDA for 2015 will not fully fund the company's annual financial commitments (about C$40 million-$45 million). The agency expects RGL's cash balance to decline as it funds its obligations and runs out of liquidity in the next 12-18 months. It also expects RGL's credit measures to remain highly leveraged over the next 12 months.

"We believe the company cannot access the revolver for additional liquidity because any incremental borrowings will trigger the financial covenant, which we believe the company would not meet," S&P credit analyst Aniki Saha-Yannopoulos said in a news release.

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