OREANDA-NEWS. S&P Global Ratings said today that it lowered its corporate credit rating on U. S.-based Key Energy Services Inc. to 'D' from 'CC'.

In addition, we lowered our issue-level rating on the company's senior secured term loan to 'D' from 'CC'. The recovery rating on the term loan remains '1', indicating our expectation for very high (90% to 100%) recovery in the event of a payment default.

We also lowered our issue-level rating on the company's senior unsecured notes to 'D' from 'C'. The '6' recovery rating is unchanged, indicating our expectation for negligible (0% to 10%) recovery in the event of a payment default.

"The downgrade reflects the company's decision to defer its Sept. 1, 2016, interest payment on its 6.75% senior notes due 2021," said S&P Global Ratings' credit analyst David Lagasse. The company has a 30-day grace period after the interest payment date to make the payment before an event of default occurs. We do not expect Key to make the interest payment during the 30-day grace period, which will result in a default. Additionally, an event of default related to the senior notes would trigger an event of default under Key's asset-based lending and term loan facilities.

The company entered into a plan support agreement on Aug. 24 to restructure under a prepackaged Chapter 11 deal in the U. S. Bankruptcy Court. The agreement provides that the company will exchange its outstanding bonds for new equity and reduce its debt from $974 million to $250 million. The solicitation of reorganization plan votes and rights offering will commence by Oct. 4, and end on Nov. 4, with a voluntary Chapter 11 filing expected on or before Nov. 8. Milestone deadlines in the PSA call for confirmation of the reorganization plan within 65 days of the Chapter 11 filing and emergence from Chapter 11 within 90 days of the filing