OREANDA-NEWS. S&P Global Ratings today lowered the corporate credit rating on Los Angeles-based California Resources Corp. to 'SD' from 'CC' following the close of its tender offer for its senior unsecured and second-lien debt.

At the same time, we lowered the ratings on its senior unsecured debt to 'D' from 'CC'. The recovery rating remains '6', reflecting our expectation of negligible (0%-10%) recovery in the event of a payment default.

We also raised the ratings on the senior secured second-lien notes to 'CCC+' from 'CC' and revised the recovery rating to '4', indicating our expectation of average (30%-50%, upper half of range) recovery in the event of a payment default, from '3'.

The issue-level ratings on the company's first-lien debt, including the new $1 billion first-lien, second-out term loan, remain 'B' with a recovery rating of '1', reflecting our expectation of very high (90% to 100%) recovery in the event of a payment default. We have finalized the ratings on the $1 billion first-lien, second-out term loan. "The downgrade follows the close of CRC's tender offer for its senior unsecured and second-lien notes," said S&P Global Ratings credit analyst Paul Harvey. "We viewed the tenders on the senior unsecured notes as a selective default because investors received less than what was promised on the original securities, about 53% of par on average," he added

The second-lien notes were not accepted in the tender. Also, we viewed the offer as distressed, rather than purely opportunistic, given the current challenging operating environment and need for CRC to reduce its burdensome debt level to be in line with expectations for longer-term crude oil and natural gas prices.

Additionally, we returned the rating on CRC's second-lien notes to 'CCC+', and lowered the recovery rating to '4', indicating our expectation for average (30%-50%, upper half of range) recovery in the event of a payment default, from 3. The revision of the issue level rating reflects that the second-lien notes were not accepted for the tender, because the senior unsecured notes had priority in the tender and were oversubscribed. The lower recovery rating reflects the additional first lien debt following the upsize of the first-lien, second-out term loan to $1 billion from $700 million.

We expect to reassess the corporate credit rating in the near-term, and at this time expect to raise the rating back to 'CCC+' from 'SD'. We also expect to maintain the 'D' ratings on the notes involved in the tender because we expect there could be further distressed transactions on those notes.

The first-lien senior secured debt, including the second-out term loan, and second-lien note ratings reflect the expectation that the corporate credit rating will return to 'CCC+' from 'SD'.