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