S&P: W&T Offshore Inc. Downgraded To 'SD' On Distressed Exchange; Various Issue-Level Rating Actions Taken
At the same time, we assigned a 'B-' issue-level rating to the company's new 1.5 lien notes due 2019 with a recovery rating of '1', reflecting our expectation of very high (90% to 100%) recovery to creditors in the event of a payment default; a 'CCC' issue-level rating to its new second-lien notes due 2020 with a recovery rating of '3' reflecting our expectation of meaningful (50% to 70%, higher end of the range) recovery to creditors in the event of a payment default; and a 'CC' issue-level rating to its new third-lien notes due 2021 with a recovery rating of '6', reflecting our expectation of negligible (0% to 10%) recovery to creditors in the event of a payment default.
"The rating action reflects our assessment that W&T Offshore's exchange on its 8.5% senior unsecured notes due 2019 was a distressed exchange based on the holders receiving less than par value, and our view that the company faced a realistic possibility of conventional default prior to the exchange," said S&P Global Ratings credit analyst Kevin Kwok.
In May 2016, W&T Offshore Inc. began discussions regarding a potential exchange transaction involving its 8.5% senior unsecured notes due 2019 and its 9% second-lien secured notes due 2020. On Sept. 1, 2016, the company agreed to exchange approximately $710.2 million of the $900 million 8.5% senior unsecured notes for 60.4 million shares of its common stock, $159.8 million in new 9%/10.75% senior second-lien PIK toggle notes due 2020 and $142 million in new 8.5%/10% senior third-lien PIK toggle notes due 2021, which amounts to less than 60% of par based on the closing share price of $1.66. The new notes were issued on Sept. 7, 2016. The original 9% second-lien secured notes were unaffected as no agreement was settled upon during the discussions. At the same time, the company also announced a new $75 million 1.5-lien term loan to repay portions of outstanding borrowings under the credit facility ($148 million as of June 30, 2016) and to pay expenses related to the exchange offer.
We expect to reassess the corporate credit rating in the next few days, and at this time expect to raise the rating to 'CCC' from 'SD'. We also expect to raise the 'D' ratings on the notes involved in the tender because we do not expect any further distressed transactions on those notes. Our analysis will incorporate the challenging operating environment for oil and gas companies at current commodity prices and W&T Offshore's new capital structure and our assessment of its liquidity.