TEXT-S&P cuts GMX Resources rating to 'SD'

Fri Sep 21, 2012 3:01pm EDT

Overview
     -- U.S. exploration and production company Energy GMX Resources Inc. 
 has completed an exchange offer for approximately 47.9% of its
outstanding 5.00% senior convertible notes due 2013 (unrated), and 44% of its
outstanding 4.50% senior convertible notes due 2015 (unrated).
     -- Holders of $38 million of principle amount of the 2015 convertible 
notes exchanged $1,000 principal for $700 principal new senior secured 
second-priority notes due 2018 (about $26.6 million). We view this to be a 
selective default ('SD').
     -- We are lowering our corporate credit rating on GMX to 'SD' from 'CC' 
and placed our 'CCC+' rating on the company's $288.6 million senior secured 
notes on CreditWatch with negative implications.
Rating Action
On Sept. 21, 2012, Standard & Poor's Ratings Services lowered its corporate 
credit rating on GMX Resources Inc. to 'SD' (selective default) from 'CC', 
reflecting its completion of an exchange offer for a portion of its 5.0% 
convertible notes due 2013 and 4.5% convertible notes due 2015. At the same 
time, we placed the company's $288.6 million senior secured notes due 2017 on 
CreditWatch with negative implications.


Rationale
The rating actions follow the company's announcement that it has completed an 
exchange offer for its 5.0% convertible notes due 2013 and 4.5% convertible 
notes due 2015. The exchange offer included $38 million principle of 4.5% 
convertible notes due 2015 that accepted an exchange of $1,000 principle for 
$700 principle of new senior secured second-priority notes due 2018. We 
consider the completion of such an exchange, at a material discount to par, to 
be a distressed exchange and, as such, tantamount to a default under our 
criteria (see related research). In addition, about $24.9 million principal of 
5.0% convertible notes due 2013 were tendered at an exchange rate of $1,000 
principal for $1,000 principal new senior secured second-priority notes due 
2018 and about 7.2 million shares of common stock. GMX currently expects to 
issue a total of $51.5 million principle of new second-priority notes. GMX 
expects about $27.1 million of 2013 notes and $48.3 million of 2015 notes will 
remain outstanding at the end of the transaction.

The CreditWatch negative listing on the $283.5 million secured notes due 2017 
reflects the potential for a downgrade if our reassessment of GMX's corporate 
credit rating is 'CCC' or lower. In our opinion, the remaining $27.1 million 
of 5% convertible notes due February 2013 poses a significant risk of default 
for GMX given its very limited liquidity at this time. As a result, the 
corporate credit rating may not return to the 'CCC+' level when reassessed, 
absent a liquidity event in the intervening period. 

We expect to assign a new corporate credit rating on GMX as well as resolve 
the CreditWatch listing in the near future. We will base the new ratings on 
our assessment of the company's new capital structure and projected near-term 
liquidity, including the February 2013 maturity of the remaining $27.1 million 
5.0% convertible notes. In addition, we will incorporate the company's success 
to date in the Bakken and Niobrara plays, as well as our outlook on the North 
American exploration and production industry. 

Related Criteria And Research
Rating Implications Of Exchange Offers And Similar Restructurings, Update, 
May, 12, 2009 

Ratings List
Downgraded
                                        To                 From
GMX Resources Inc.
 Corporate Credit Rating                SD/--              CC/Negative/--

Ratings Affirmed
GMX Resources Inc.
 Senior Secured                         CCC+/Watch Neg     CCC+
  Recovery Rating                       4                  4
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