S&P Cuts Rating on Sandridge Energy (SD) to 'SD'; Notes Unsecured Notes Repurchase Agreement

Standard & Poor's Ratings Services lowered its corporate credit rating on SandRidge Energy Inc. (NYSE: SD) to 'SD' (selective default) from 'CCC+'.

"The downgrade follows SandRidge's announcement that it has entered into an agreement to repurchase a portion of its senior unsecured notes at a significant discount to par," said Standard & Poor's credit analyst Ben Tsocanos.

The company will repurchase $100 million of aggregate principal amount of notes for $30 million in cash.

"We view the repurchase as a distressed exchange because at the close of the transaction investors receive less than what was promised on the original securities, said Mr. Tsocanos".

SandRidge also reached agreement to exchange $300 million of its senior unsecured notes due 2020, 2021, 2022, and 2023 for convertible notes due 2022 and 2023. The new notes convert mandatorily to common stock at a threshold of $1.10 per share at a strike price equivalent to 40% of par. New note holders also have the option to convert at a rate up to 40% of par and receive an interest make-whole, with certain limitations. We would likely view the conversion in either case as a distressed exchange based on the expectation that investors will receive less than the face value of the original notes.

We note that the repurchase reduces the company's approximately $4.2 billion of debt by a net $70 million, marginally improving financial leverage and reducing interest payment. If holders of the new convertible notes convert them to common stock either at their option or mandatorily, SandRidge's leverage will improve further.

We expect to review the corporate credit and issue-level ratings when we assess the likelihood of further debt exchanges as low. Our analysis will incorporate the challenging operating environment for oil and gas companies at current commodity prices and SandRidge's high, though marginally improved, leverage.

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