OREANDA-NEWS. S&P Global Ratings said today that it has lowered its long-term corporate credit rating on U. K.-based oil and gas exploration company EnQuest PLC to 'SD' (selective default) from 'B-'.

We also lowered our issue rating on EnQuest's $650 million senior unsecured notes to 'D' (default) from 'CCC+'. The recovery rating remains at '5', indicating our expectation of recovery in the lower half of the 10%-30% range.

The rating actions follow EnQuest's announcement on Oct. 13, 2016, that it had agreed with noteholders representing approximately 61% of the high yield notes to capitalize the coupon due Oct. 17, in line with a proposed restructuring. The proposed restructuring allows EnQuest to capitalize interest on the notes when the average oil price is below $65 per barrel. The company expects to complete the restructuring by Nov. 21.

Key terms of the restructuring proposal include an extension of the tenor of the revolving credit facility (RCF) due in 2019 to 2021, amendment of the amortization profile and target margins, as well as relaxation of certain financial covenants. The proposal includes the potential for capitalizing interest on the notes as opposed to making cash payments, based on oil prices and other factors; and a possible extension of the notes' maturity date to 2023. The material amendments to the RCF and notes and the overall restructuring are inter-conditional, which means that the company will also need to raise approximately ?82 million of additional equity capital to get approval from the surety bond providers to renew the surety bond facilities. The company has already announced the successful conditional placement of ?82 million.

Once the restructuring is completed, we will reassess the company's relative creditworthiness based on the new capital structure. We anticipate that liquidity and leverage metrics under the new capital structure will improve, but that the operating environment will remain challenging. Any future rating action will take into account the company's ability to complete the Kraken project and reach oil in early 2017, which should support deleveraging thereafter.