S&P Global Ratings assigned its ‘CCC+’ issue-level and ’3′ recovery rating to Comstock Resources Inc.’s proposed issuance of $400 million of senior unsecured debt. The ’3′ recovery rating indicates S&P’s expectation of meaningful (50%-70%; rounded estimate: 50%) recovery to creditors in the event of a payment default.
S&P is also placing all of its ratings, including the ‘CCC+’ issuer credit rating, on CreditWatch with positive implications.
The CreditWatch placement reflects the possibility of an upgrade following the close and funding of Comstock Resources’ unsecured notes offering. The debt issuance would significantly improve Comstock’s liquidity position, with pro forma revolver borrowings reduced to around $870 million (or less, if the deal is upsized), which equates to a 62% draw on the $1.4 billion borrowing base. At quarter end, RBL availability was limited to just $150 million (with almost 90% of the revolver drawn) following the spring redetermination process, which resulted in a borrowing base reduction to $1.4 billion from $1.575 billion. S&P’s assessment of financial leverage also improved following the successful completion of a recent common stock offering that netted approximately $197 million, which was used along with cash on hand to redeem $210 million of series A convertible preferred stock.
“If the notes offering closes and funds without material unfavorable changes to the proposed terms, we may raise our rating on Comstock to reflect its improved liquidity position, lower leverage, and our expectation that significant free cash flow generation will enable the company to further reduce revolver borrowings over the next two years. We expect a potential upgrade would be limited to one notch,” S&P said.