TEXT-S&P: Geokinetics Holdings ratings cut to 'D'

Tue Dec 18, 2012 5:18pm EST

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Overview
     -- U.S.-based seismic services company Geokinetics Holdings Inc. failed 
to make a $14.6 million interest payment due Dec. 15, 2012 on its 9.75% senior 
secured notes.
     -- Although it is operating under a 30-day grace period to make its 
interest payment, we consider the grace period for interest payment as 
tantamount to default if the payment is not cured within five business days 
after the initially scheduled due date.
     -- We are lowering our corporate credit rating on Geokinetics and our 
issue-level rating on the company's senior secured notes to 'D' from 'CCC-'.

Rating Action
On Dec. 18, 2012, Standard & Poor's Ratings Services lowered its corporate 
credit rating on Geokinetics Holdings Inc. to 'D' from 'CCC-'. We also lowered 
our issue-level rating on its senior secured notes to 'D' from 'CCC-'. The 
recovery rating on the notes remains unchanged at '4', reflecting our 
expectation for average recovery (30% to 50%) under a payment default.

Rationale
The rating action follows Geokinetics' announcement on Dec. 17, 2012 that it 
missed its interest payment on its 9.75% senior secured notes due in 2014. 
Although it is operating under a 30-day grace period to make its interest 
payment, we consider the grace period for interest payment as tantamount to 
default if the payment is not cured within five business days after the 
initially scheduled due date. Given the company's very weak liquidity, we 
believe it is unlikely that the company will make its payment within the 
five-day window.

The company intends to restructure its capital structure during the grace 
period, which expires Jan. 14, 2013. It currently contemplates that under this 
restructuring, it could convert some or all of its existing notes for common 
equity and that it will extinguish its existing preferred stock for cash, 
common equity, and warrants. If the company fails to restructure within the 
30-day grace period, it will attempt to enter into a forbearance agreement 
with its noteholders in order to continue negotiating a restructured capital 
structure.

If the interest payment is not cured during the 30-day grace period, or 
forbearance is not mutually agreed upon, holders of at least 25% in aggregate 
principal amount of the outstanding senior secured notes may declare all notes 
to be due and payable immediately. In addition, the company's Whitebox Credit 
Facility, which, as of Sept. 30, 2012, was fully drawn at $50 million, will be 
accelerated and become due and payable immediately. As of Sept. 30, 2012, 
Geokinetics had $350 million of funded debt.

The ratings on Geokinetics reflect our assessment of its "vulnerable" business 
risk and "highly leveraged" financial risk. Geokinetics is in distress because 
of its very weak liquidity, which was approximately $22 million on Sept. 30 
(excluding prefunded multiclient investments, which are not available for 
current obligations). At the same time, the company has onerous spending 
requirements that include nearly $40 million of annual cash interest and $20 
million of maintenance capital spending. Additional stress comes from its poor 
margins relative to rated peers, aggressive credit protection measures, the 
cancellable and deferrable nature of its contracts, and uncertain potential 
liability related to the Trinity II Liftboat incident. The seismic data 
industry is extremely volatile and challenging because it is subject to high 
competition and weak pricing during exploration and production industry 
downturns.

Recovery analysis
For the full recovery analysis, see our recovery report on Geokinetics to be 
published after this release on RatingsDirect.

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

Ratings List

Downgraded To Default 
                                        To                 From
Geokinetics Holdings Inc.
 Corporate Credit Rating                D/--               CCC-/Negative/--

Geokinetics Inc.
 Senior Secured                         D                  CCC-
  Recovery Rating                       4                  4

Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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