S&P downgrades Key Energy

S&P said it lowered the corporate credit rating on Key Energy Services Inc. to D from CC, along with the rating on its senior secured term loan to D from CC.

The recovery rating on the term loan remains at 1, indicating 90% to 100% expected default recovery.

S&P also said it lowered the rating on the company's senior unsecured notes to D from C. The 6 recovery rating is unchanged, indicating 0 to 10% expected default recovery.

The downgrades reflect the company's decision to defer its Sept. 1 interest payment on its 6¾% senior notes due 2021, the agency said.

The company has a 30-day grace period after the interest-payment date to make the payment before an event of default occurs, S&P noted.

But, the agency said it does not expect Key to make the interest payment during the 30-day grace period, which will result in a default.

The company entered into a plan support agreement on Aug. 24 to restructure under a prepackaged Ch. 11 deal in the U.S. Bankruptcy Court, S&P said.

The agreement states that the company will exchange its outstanding bonds for new equity and reduce its debt from $974 million to $250 million, the agency explained.

Fitch downgrades MIE

Fitch Ratings said it downgraded MIE Holdings Corp.'s long-term issuer default rating to CCC from B-.

The ratings also were removed from negative watch.

The ratings on the company’s senior unsecured $200 million notes due 2018 and $500m notes due 2019 also were downgraded to CCC from B-. The recovery ratings on the notes remain at RR4.

The downgrades reflect the challenges MIE faces in refinancing its outstanding notes due between February 2018 and April 2019, which represent the majority of its debt obligation, Fitch said.

These risks persist even though the company’s near-term liquidity pressure has declined, the agency explained.

It will be difficult for MIE to use the cash proceeds from completed and planned asset sales to purchase assets at a discount as the agency expects the oil price to see further moderate rises over the next few years, Fitch said.

This potentially challenges the company's ability to improve its operating scale and profile through acquisitions, the agency added.

S&P lowers DynCorp to stable

S&P said it revised the outlook on DynCorp International Inc. to stable from positive.

The agency also said it affirmed the company’s CCC+ corporate credit rating.

The outlook revision reflects a belief that the recent loss of the INL-Air Wing contract will make it more difficult for the company to achieve expected revenue targets and earnings growth assumptions over the next few years, S&P explained.

This reduces the likelihood of an upgrade, the agency said.

On Sept. 1, the company was notified by the U.S. State Department that the new INL-Air Wing contract, which could be worth up to $10 billion over the 11-year contract term, was awarded to competitor AAR Corp.

INL-Air Wing is a major contract for DynCorp and although the current contract expires in October 2016, the company is negotiating for an extension through October 2017, S&P said.

The company’s credit ratios are expected remain weak in 2016 with debt-to-EBITDA of 8.5x to 9.5x, the agency said, but should improve with higher earnings as less profitable contracts end and are replaced with new business.

Moody’s ups Beazer notes, rates new notes B3

Moody's Investors Service said it assigned a B3 rating to Beazer Homes USA, Inc.'s proposed $300 million senior unsecured notes due 2022.

Proceeds will be used to retire Beazer's $300 million of senior secured notes due 2018. Following this transaction, the preponderance of debt in the capital structure will be unsecured and, as a result, the ratings on the company's existing senior unsecured notes are being upgraded to B3 from Caa1.

Beazer's B3 corporate family rating and B3-PD probability of default rating remain unchanged and the outlook remains positive.

The B3 corporate family rating considers the company’s historically high homebuilding debt to capitalization ratio (69% at June 30), weak homebuilding interest coverage (1.2 times for TTM ended June 30) and lower gross margins (17.6% for TTM ended June 30) when compared to many of its peers, the agency said.

S&P lifts Bonanza Creek after interest payment

S&P said it raised the corporate credit rating on Bonanza Creek Energy Inc. to CC from D, along with the rating on its senior unsecured debt to CC from D.

The recovery rating is unchanged at 6, indicating 0 to 10% expected default recovery.

The outlook is negative.

The upgrade follows news that the company has made the interest payment on its unsecured notes due 2023 within the 30-day grace period, S&P said.

The ratings reflect Bonanza Creek's heightened default risk in the next few months, given its upcoming semi-annual $16.9 million interest payment on the $500 million unsecured notes.

The ratings also consider an opinion that despite having sufficient cash balances to make this payment, Bonanza Creek may elect not to make the next interest payment as it did in August with the $300 million unsecured notes, the agency said.

The company also is overdrawn on its revolving credit facility by $73 million as of June 30 and it is subject to about $15 million in monthly deficiency payments through November, S&P added.

The agency said it believes the borrowing base will be further reduced at the upcoming fall re-determination.

Moody’s upgrades Cliffs, notes

Moody's Investors Service said it upgraded Cliffs Natural Resources Inc.’s corporate family rating and probability of default rating to Caa1 and Caa1-PD, respectively, from Ca and Ca-PD.

At the same time, the agency upgraded Cliffs' first-lien senior secured notes to B2 from Caa1, 1½-lien secured notes to Caa1 from Caa3, second-lien notes to Caa2 from Ca and senior unsecured notes to Caa2 from C.

The SGL-3 speculative grade liquidity rating remains unchanged.

The outlook is stable. This concludes the review for upgrade initiated on Aug. 11.

Moody’s said the upgrade reflects the improving trends evidenced in Cliffs’ performance on strengthened fundamentals in the U.S. steel industry, the dominant market for Cliffs’ iron ore pellets and an improving order book, as well as the successful renegotiation of the contracts with ArcelorMittal USA LLC, which had expiry dates of late 2016 and early 2017.

The new 10-year agreement, which expires in 2026, includes purchases of up to 10 million tons annually and a minimum of 7 million tons, as well as other volumes received has also resulted in the restart of the United Taconite mining facility and an increase in expected shipments for 2016, the agency explained.

The upgrade also considers the company's reduction in debt, both through the issuance of the 1½-lien secured notes exchanged for senior unsecured and second-lien notes, which Moody’s said it viewed as a distressed exchange and limited default, and the more recent tender for the senior notes due in January 2018 following the issuance of $300 million in common stock.

Pro-forma for this repayment, leverage, as measured by the debt/EBITDA ratio would be 9.2 times at June 30, versus actual of 10.4 times. On an improved volume basis and iron ore prices ranging between $50/60 tonne, Moody’s expects leverage over the next 12 to 18 months to improve to about 7 times.

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