OREANDA-NEWS. S&P Global Ratings today assigned its 'B+' issue-level rating (one notch below the corporate credit rating) and '5' recovery rating to Denver–based SM Energy Co.'s proposed $500 million senior unsecured notes due 2026. The '5' recovery rating indicates our expectation of modest (10% to 30%; upper half of the range) recovery in the event of default. The company will use the note proceeds to finance its recently announced acquisition of leasehold interests in the Midland Basin, and/or for general corporate purposes.

The ratings on SM Energy reflect our assessment of the company's fair business risk profile and aggressive financial risk profile. These assessments incorporate the company's participation in the highly cyclical oil and gas industry, balanced production mix between liquids and natural gas, good internal reserve replacement, and production from multiple basins, although highly concentrated in the Eagle Ford (prior to the recently announced acquisition of undeveloped acreage in the Permian Basin). The ratings also include our expectation that funds from operation to debt will remain below 20% over the next two years as the company has cut back capital spending and resulting production in response to lower crude oil and gas prices.