OREANDA-NEWS. S&P Global Ratings said today that it lowered its issue-level rating on exploration and production company Comstock Resources Inc.'s 10% senior secured notes due 2020 to 'D' from 'B'. The recovery rating remains '2' indicating our expectation of substantial (70% to 90%, lower half of the range) recovery in the event of the default. The issue-level rating on the company's 7.75% and 9.5% senior unsecured notes due 2019 and 2020 respectively, remains 'D' (recovery rating: '6'). The corporate credit rating on Comstock remains 'SD'.

The downgrade of the 10% senior secured notes follows the Sept. 6, 2016, closing of an exchange offer involving the company's secured and unsecured notes. The new senior secured notes will mature in 2020 and bear interest at the rate of 10% per year, if the company elects to pay in cash, or 12.25% per year if the company elects to pay interest in kind (PIK). We view the exchange as distressed as holders of the new notes may receive interest at a later date than originally promised if the PIK feature is exercised by the company.

We expect to review the corporate credit rating and issue-level ratings on the new and old debt issues when we assess the likelihood of further debt exchanges as low. Our analysis will incorporate the company's new capital structure and current liquidity position, while still taking into account its challenging operating environment and high leverage.