OREANDA-NEWS. S&P Global Ratings today raised its issue-level rating on Oklahoma City-based Seventy Seven Energy Inc.'s (SSE) first-lien secured term loan due 2020 to 'B' from 'B-'. The recovery rating on this debt is '1', indicating our expectation of very high (90% to 100%) recovery to creditors in the event of a payment default.

We also assigned a 'CCC' issue-level rating to the company's second-lien secured incremental term loan due 2021. The recovery rating on this debt is '5', indicating our expectation of modest (10% to 30%, upper half of the range) recovery to creditors in the event of a payment default.

The revision reflects SSE's senior secured loan hierarchy. The $400 million secured term loan due 2020 (about $393 million of which is outstanding) is a first-lien secured term loan. The $100 million secured incremental term loan due 2021 (about $84 million of which is outstanding) is a second-lien secured term loan.

RECOVERY ANALYSISKey analytical factors:Our simulated default scenario contemplates a cyclical downturn in the oil and gas sector coupled with the company's inability to renew a material portion of its contracts with Chesapeake Energy or new customers. We are revising our issue-level rating on SSE's first-lien secured term loan maturing in 2020 to 'B' from 'B-' ('1' recovery rating).We are assigning a new issue-level rating on SSE's second-lien secured incremental term loan maturing in 2021 to 'CCC' ('5' recovery rating, upper half of the range).Our recovery analysis for SSE assumes its asset-based loan facility will have $60 million of principal outstanding prior to default. We base our valuation for SSE on our estimated EBITDA at emergence of $100 million and an EBITDA multiple of 5x. Simulated default assumptions:Simulated year of default: 2018EBITDA at emergence: $100 millionEBITDA multiple: 5x Simplified waterfall:Net enterprise value (after 5% administrative expenses): $475 millionPriority claims: $62 millionSecured first-lien debt claims: $395 millionRecovery expectations: 90% to 100%Secured first-lien debt claims: $87 millionRecovery expectations: 10% to 30% (upper half of the range)

Note: All debt amounts include six months of prepetition interest.