S&P downgrades Dune Energy

Standard & Poor's said it lowered its unsolicited corporate credit rating on Dune Energy to CC from CCC- and affirmed its CC unsolicited senior secured debt rating on Dune's $300 million 10½% senior secured notes due 2012.

S&P also said it revised its recovery rating on Dune's senior secured notes to 4 from 5, indicating the agency's expectation of average recovery in the event of a payment default.

"The downgrade is based on Dune Energy's announcement that it has entered into a restructuring plan support agreement with bondholders and preferred stock holders that would exchange the existing $300 million of notes for a combination of Dune equity, and either cash and new debt securities in an aggregate amount of $50 million if the exchange offer is fully subscribed," said S&P credit analyst Patrick Jeffrey in a news release.

S&P said it views this transaction as a distressed exchange offer as bondholders and holders of preferred stock would be receiving less value than the promise under the original securities.

Upon completion of the exchange offer, S&P said it would expect to lower its unsolicited senior secured debt rating to D from CC and the unsolicited corporate credit rating to SD from CC. In the event of a pre-packaged bankruptcy, S&P said it would expect to lower the corporate credit rating to D from CC.

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