Shares of Ultra Petroleum (UPL) were down nearly 15% at midday, trading below $2 a share, after Standard & Poor's Rating Service lowered its corporate credit rating five notches to CCC- from B+. Additionally, S&P lowered the rating on the Ultra Petroleum's unsecured debt by seven notches to C from B+.
"The rating action reflects our view that Ultra Petroleum's leverage and liquidity continue to deteriorate in light of our recently reduced commodity price deck and our estimate that the company will breach financial covenants on both its unsecured credit facility and senior unsecured notes at the end of the first quarter," said Standard & Poor's credit analyst Carin Dehne-Kiley in a release.
The Texas-based oil and gas company earned a place on Real Money's "Stressed Out" index last week. As of its third-quarter earnings release, Ultra Petroleum has $3.5 billion in debt, $2.7 billion of which is in the form of senior notes. The company has a $62 million note coming due in March and its ability to meet is under question given the company's cash position as of the third quarter as well as information gleaned from the S&P downgrade.
"The negative outlook primarily reflects our view that Ultra Petroleum will breach its leverage covenant at the end of the first quarter, and could restructure its debt or announce a distressed exchange within the next six months," according to the S&release announcing the downgrade.
Ultra Petroleum's ability -- or rather, potential inability -- to meet its debt obligations is likely not a surprise to anyone who has been following the company for some time. The company made the following statement in its third quarter filing with the Securities and Exchange Commission:
"If over the next twelve months, crude oil and natural gas prices remain at current levels or fall to lower levels, the Company is likely to generate lower operating cash flows, which would make it more difficult for the Company to remain in compliance with all of its debt covenants."
Additionally, TheStreet's Quant Ratings service rates UltaPetroleum a D with a "Sell" recommendation, citing its underperformance relative to the the S&P 500 as well as its 102.5% decrease in net income over the last year.
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