Fitch lowers QGOG Constellation

Fitch Ratings said it downgraded QGOG Constellation SA's long-term foreign- and local-currency issuer default ratings to CC from CCC.

The agency also said it downgraded Constellation's senior secured notes due 2024 to CC with recovery rating of RR4 from CCC with recovery rating of RR4 and senior unsecured notes due 2019 to C with recovery rating of RR6 from CC with recovery rating of RR6.

The downgrades reflect news that the company will defer interest payments of about $27 million on its 9½% senior notes due 2024 and $3 million on its 6¼% senior notes due 2019.

Fitch also said it expects the company's liquidity and profitability to further deteriorate in the short- to medium-term, contributing to a low visibility of cash flow stability once contracts expire in 2018.

The one-notch rating differential between Constellation's secured and unsecure notes reflect an expectation of a below average recovery given default for the unsecured notes, the agency said.

The ratings are based on the company's wakening liquidity position and high dependence on its ability to roll over bank debt, Fitch said.

The ratings also consider its inability to re-contract its drilling rigs in anticipation of the contract expirations in 2018, the agency added.

But the company's good operational track record may put them in a favorable competitive position compared to regional peers, Fitch said.

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