OREANDA-NEWS. S&P Global Ratings said today it has lowered its issue-level rating on EP Energy LLC's second-lien debt to 'CCC+' from 'B', and revised the recovery rating to '6' indicating our expectation of negligible (0%-10%) recovery in the event of a payment default from '3'.

At the same time, we assigned our 'B+' issue-level rating to EP's proposed priority-lien $459 million term loan, with a recovery rating of '2', indicating our expectation for substantial (70%-90%, upper end of range) recovery in the event of a payment default.

The corporate credit and senior unsecured ratings are unaffected, and the outlook remains negative.

"The downgrade of the second-lien debt rating follows EP's announcement that it plans to exchange a portion of its term loans maturing 2018 and 2019 for a new priority-lien term loan due 2021," said S&P Global Ratings credit analyst Paul Harvey.

As a result of the new priority debt, recovery on the expected remaining second-lien debt falls to 6 indicating our expectation of negligible (0%-10%) recovery in the event of a payment default from '3', and related second-lien debt rating to 'CCC+' from 'B'. The ratings on the company's senior unsecured debt are unaffected. Our recovery analysis used a company-provided midyear 2016 valuation of EP's reserves, computed at our recovery price deck assumptions of $50 per barrel West Texas Intermediate (WTI) crude oil and $3.00 per mmbtu natural gas.

In addition, we have assigned our 'B+' rating to EP's proposed $459 million priority-lien term loan, with a recovery rating of '2', indicating our expectation for substantial (70%-90%, upper end of range) recovery in the event of a payment default. The company will use proceeds from the notes to exchange for the company's second-lien debt.

The recovery and issue-level ratings for the senior unsecured debt remain unchanged. The 'B' corporate credit rating and negative outlook on EP are unaffected.