S&P lowers Sheridan Fund II

S&P said it lowered the issuer credit ratings on the Sheridan Fund II-A LP to SD (selective default) from CCC-, along with the issue ratings on the revolving credit facility and the senior secured term loan to D from CCC+ and the rating on the subordinated term loan to CC from CCC.

The agency also downgraded Sheridan Investment Partners II LLC and Sheridan Production Partners II-M LP to SD (selective default) from CCC-.

The downgrade reflects that Sheridan Fund II entered into agreements with its creditors to defer debt service payments on its revolving credit facility and secured term loan to July 31, the agency explained.

The term and revolver lenders will not receive $9 million in interest payments on the original May 31 due date, S&P said, and $1.4 million in amortization payments on the term loan due at the end of June will not be made at that time.

The agency said it views such missed payments with no additional consideration for the deferral as a default.

The deferrals provide Sheridan Fund II with liquidity to market and attempt asset sales, S&P said.

The agency said it does not believe these deferrals constitute a default on the subordinated term loan because the debt allows for pay-in-kind interest.

But the subordinated term loan has entered into a 180-day stand-down period after the fund did not cure its going concern deficiency by April 30, S&P noted.

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