S&P downgrades Gavilan

S&P said it lowered the issuer credit rating on Gavilan Resources LLC to CCC+ from B- and removed the ratings on the company from CreditWatch, where they were placed with negative implications in December 2018.

The agency also said it lowered the rating on Gavilan's second-lien term loan to CCC+ from B-. The 3 recovery rating is unchanged.

Gavilan's production has continued to decline in 2019 and, with just minimal capital spending this year, the agency said it expects the company's production declines to accelerate in 2020.

Therefore, S&P said it expects the company's leverage to increase and anticipate that its funds from operations-to-debt ratio will fall to less than 10% this year and approach 0 in 2020.

The negative outlook reflects the potential for a downgrade if the company's liquidity weakens or we envision a specific default scenario in the next 12 months.

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