OREANDA-NEWS. Fitch Ratings has downgraded Schahin Oil and Gas Ltd.'s (Schahin, or HoldCo) foreign- and local-currency Issuer Default Ratings (IDRs) to 'B-' from 'B+' and placed the ratings on Negative Rating Watch.

The downgrade reflects the company's liquidity deterioration and higher levels of refinancing risk as it continues to delay obtaining permanent long-term financing at the holding company level. Schahin currently has a bridge loan with Mizhuo Bank Ltd for approximately USD460 million due in October 2015. The likelihood that the company will be able to refinance this maturity with third parties has significantly deteriorated as a result of the decrease in international oil prices and the uncertainty created by the current investigation into Petrobras' contracting practices. Further pressuring Schahin's liquidity is approximately USD340 million of short-term bank debt at Deep Black Drilling LLC, an intermediate holding company.

The Negative Watch reflects the increased uncertainty surrounding the company's ability to refinance its outstanding debt in a timely manner before its October deadline. Schahin's ratings reflect the company's high consolidated leverage and structural subordination to its operating subsidiaries' project finance debt. Consolidated leverage is expected to decline over time as the project finance debt at the operating companies amortizes. The OpCos assets have long-term contracts in place that allow them to better match project debt with the life of the assets, which results in low debt service requirements and greater cash flow distributions to the HoldCo.

RATING SENSITIVITIES

Factors that could lead to a negative rating action are: Failure to put in place permanent long-term financing at the HoldCo to refinance intermediate subsidiaries' obligations and/or failure to lower leverage to 5x or below in the medium term, or an overly aggressive growth strategy that could pressure credit metrics.

Although a positive rating action is not expected in the short- to medium-term, key considerations for a positive rating action would be a faster deleveraging process coupled with a reduction of the Holdo's structural subordination to its operating assets.