S&P downgrades Milagro

Standard & Poor's said it lowered the corporate credit rating on Milagro Oil & Gas Inc. to CC from CCC-, along with the rating on its $250 million 10½% senior secured notes to CC from CCC.

The agency also said it removed the ratings from CreditWatch with developing implications, where they were placed in April.

The recovery rating on the $250 million senior secured notes remains 3, indicating 50% to 70% expected default recovery.

The outlook is negative.

The downgrades reflect the potential for a selective default on Milagro's $250 million 10½% senior secured notes due 2016 due to certain aspects of the company's exchange offer that would constitute a distressed exchange under the agency's criteria, S&P said.

This exchange is considered distressed because holders of the existing 2016 notes would receive significantly less than the original face value that was promised, the agency said.

The recovery rating on the $250 million senior secured notes is 3, indicating 50% to 70% expected default recovery.

The negative outlook reflects the likelihood that S&P will lower the corporate credit rating to SD (selective default) following the completion of the exchange offer, the agency added.

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