S&P rates SM Energy notes BB

Standard & Poor’s said it assigned a BB rating and 4 recovery rating to SM Energy Co.’s proposed $400 million senior unsecured notes due 2025.

The 4 recovery rating indicates 30% to 50% expected default recovery.

The proceeds will be used to refinance its $350 million senior unsecured notes due 2019 and a portion of amounts outstanding under its revolving credit facility, S&P said.

The ratings reflect the company’s fair business risk profile and significant financial risk profile, the agency said.

The ratings also consider its participation in the highly cyclical oil and gas industry, balanced production mix between liquids and natural gas, good internal reserve replacement and production from multiple basins, although highly concentrated in the Eagle Ford, S&P said.

The ratings also include an expectation that funds from operation-to-debt will remain at less than 45% over the next two years as the company cuts back capital spending and production in response to lower crude oil and gas prices, the agency said.

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