S&P revises SM Energy to negative

S&P said it affirmed its BB-corporate credit rating on SM Energy Co. and revised the outlook to negative.

At the same time, the agency affirmed the B+ issue-level rating on the company's senior unsecured debt with a recovery rating of 5, indicating an expectation of modest (10% to 30%, upper half of the range) recovery to creditors in the event of a payment default.

SM Energy announced it entered into a definitive agreement to purchase 24,783 net acres in the Midland Basin from Rock Oil Holdings LLC (unrated) for $980 million. The acquisition will be funded with an equity offering, asset sales and debt.

The acquisition is largely contiguous and more than doubles the company's acreage position in the Midland Basin, the agency said. However, the acquisition is mostly undeveloped acreage and will require additional capital expenditures to bring on production.

"We continue to assess SM Energy's business risk profile as fair," S&P credit analyst David Lagasse said in a news release.

"The company's financial risk profile remains aggressive, however, at the lower end of the range."

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