TEXT-S&P cuts GMX Resources rating to 'CC'
Overview -- U.S.-based oil and gas exploration and production company GMX Resources Inc. has launched an exchange offer for the remainder of its 5% convertible senior notes due 2013 and a portion of its 4.5% convertible senior notes due 2015. -- We have lowered the corporate credit rating to 'CC' to reflect the likelihood of a selective default. -- The outlook is negative. Rating Action On Aug. 14, 2012, Standard & Poor's Ratings Services lowered its corporate credit rating on Oklahoma City, Okla.-based GMX Resources Inc. to 'CC' from 'CCC+'. The 'CCC+' rating on the company's $283.5 million senior secured notes, remains unchanged. The outlook is negative. Rationale The downgrade to 'CC' reflects the potential for a selective default on GMX's 4.5% senior convertible notes due 2015 ($86.3 million outstanding as of June 30, 2012), due to certain aspects of GMX's exchange offer that would constitute a distressed exchange under Standard & Poor's criteria. As part of the exchange offer for its 2013 and 2015 convertible notes (see below), holders of the 2015 notes have the right to exchange $1,000 principle of existing notes for $700 principle of new senior secured second-priority notes due 2018. We view this as a distressed exchange. Holders of the existing 2015 notes, regardless of when purchased, would receive significantly less than the original face value that was promised. The exchange offer allows for the following: -- To exchange $1,000 principle of its 5.00% convertible notes due 2013 ($52 million outstanding) for $1,000 principle amount of new 9% senior secured second-priority notes due 2018 plus 288 shares of common stock, -- To exchange $1,000 principle of its 4.50% convertible notes due 2015 for $700 principle amount of new 9% senior secured second-priority notes due 2018, -- The amount of 2015 convertible notes potentially exchanged is limited by a $60 million limit on the second-priority notes that can be issued and the amount of 2013 notes successfully exchanged, and -- If all $52 million outstanding 2013 convertible notes are exchanged, $8 million of second-priority notes would remain available for holders of the 2015 convertible notes. The ratings on GMX's $283.5 million senior secured notes due 2017 are unchanged as they are not part of the exchange offer. Outlook The negative outlook reflects the likelihood that the corporate credit rating will be lowered to 'SD' following the completion of the exchange offer. Subsequently, we will review our ratings on GMX based on its new capital structure and outlook for liquidity in 2013. Related Criteria And Research -- General Criteria: Rating Implications Of Exchange Offers And Similar Restructurings, Update, May 12, 2009 -- General Criteria: Rating Implications Of Exchange Offers And Similar Restructurings, Jan. 28, 2009 Ratings List Downgraded; Outlook Negative To From GMX Resources Inc. Corporate Credit Rating CC/Negative/-- CCC+/Developing/-- Ratings Affirmed GMX Resources Inc. Senior Secured CCC+ Recovery Rating 4
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