TEXT-S&P may cut Delta Petroleum corporate credit rating

(The following statement was released by the rating agency)

Jan 16 - Standard & Poor's Ratings Services said today that it placed its ratings, including the 'B-' corporate credit rating, on exploration and production company Delta Petroleum Corp. (DPTR.O) on CreditWatch with negative implications.

The CreditWatch action reflects our concerns about Delta's liquidity, potential violations of its financial covenants, and the possibility of a negative re-determination of its borrowing-based revolving credit facility, whereby outstanding balances could exceed a revised borrowing base threshold. In addition, in light of the precipitous fall in hydrocarbon prices, its lack of hedges, and its high cost structure, Delta's ability to generate free cash flow and maintain adequate liquidity is suspect.

Under its amended $590 million credit facility, Delta could face a re-determination as early as Feb. 1, 2009, at which time the existing borrowing base, determined in November 2008, could be reduced given the fall in hydrocarbon prices.

Also, to meet capital spending of up to $85 million during 2009, Delta will need to accomplish planned asset divestures in a difficult credit environment in order to maintain adequate liquidity. Additionally, financial covenants are likely to be tight given expectations for reduced EBITDAX levels.

Debt leverage covenants started at 4.5x as of Dec. 31, 2008, and then step down to 4.25x on March 31, 2009, 4x on June 30, and 3.75x on Sept. 30. Combined with the removal of stronger 2008 earnings from calculations, debt leverage could breach covenants.

We expect to resolve the CreditWatch during the first quarter. Key near-term rating drivers include, but are not limited to, compliance with financial covenants, the success of Delta's proposed asset sales, potential for a negative borrowing base revision, and its ability and willingness to manage capital spending levels and liquidity.