S&P downgrades Koosharem

Standard & Poor's said it lowered its corporate credit rating and first-lien rating on Koosharem Corp. to CC from CCC-. The second-lien rating is affirmed at C. The recovery ratings on the company's debt issues remain unchanged.

The outlook is negative.

S&P said the rating action is based on the company's receipt in September 2011 of an adverse $51 million damage judgment regarding its litigation with the California State Fund, and the company's auditor, PricewaterhouseCoopers LLP, stating "these factors raise substantial doubt about the company's ability to continue as a going concern."

The company is negotiating a settlement and payment plan with the California State Fund and has plans to appeal the verdict, according to an S&P news release. It has accrued $52.1 million as a current liability for legal and settlement of this matter, but in S&P's opinion it does not have sufficient liquidity to make the payment and still fund operations, given that its first-lien lenders have frozen its access to its revolving credit facility.

Also, the company is in active talks with its investment bankers to restructure its debt facilities, which would qualify as a "distressed exchange" under S&P's criteria, the agency said.

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