Fitch puts Ultra unsecured notes on watch

Fitch Ratings said it affirmed the long-term issuer default ratings of Ultra Petroleum Corp. and Ultra Resources, Inc. at B with a negative outlook, along with the rating on the secured revolver and term loan at BB with recovery rating of RR1.

Fitch also said it placed the B with recovery rating of RR4 on the senior unsecured notes on Rating Watch negative.

The agency said it expects the remaining senior unsecured notes will be downgraded upon completion of the debt exchange.

The negative outlook reflects the continued downside risk to the financial flexibility as availability under the revolving credit facility could be constrained by the maximum net leverage covenant, Fitch explained.

The agency noted that minimum borrowings are expected under the revolving credit facility over the coming quarters under its base case scenario and that further asset monetization could bolster the liquidity position.

On Oct. 17, Ultra announced that it had entered into an agreement with holders of about $556.4 million of its 6 7/8% senior notes due 2022 and about $267.1 million of its 7 1/8% senior notes due 2025 to exchange all of the old notes for new 9% cash/2% payment-in-kind senior-secured second-lien notes due July 2024 and new warrants entitling each holder to purchase one common share of the company.

Under terms of the exchange agreement, the company is permitted to exchange up to 80% of the 2022 notes and 55% of the 2025 notes, Fitch noted.

The exchange agreement is expected to reduce debt by about $250 million and about $560 million of the company's debt due in 2022 will be extended until July 2024, the agency said.

Pro forma for the exchange, Ultra said it believes its debt-to-EBITDA ratio will improve to 3.3x from about 3.7x as of Sept. 30, Fitch said.

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