S&P downgrades oil producer Afren

Standard & Poor’s downgraded Afren Plc on Wednesday, becoming the second major rating agency to warn of the oil producer’s imminent default.

Afren has lost more than 90 percent of its market value, or about 1.5 billion pounds ($2.3 billion), since the end of July, hit by a slump in oil prices, the dismissal of top executives and the absence of proven or probable reserves at an oilfield in Iraqi Kurdistan.

The company, which has most of its oilfields in Nigeria, is in talks with its largest bondholders over its immediate funding needs. It said last month that its liquidity was much lower than the $235 million it held in cash at end 2014.

Afren had about $1.15 billion in gross debt as of September.

Oil and gas producers across the globe have been hit by a sharp drop in crude prices that has forced many to slash spending.

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S&P said it cut its long-term corporate credit rating on Afren to ‘SD’, or selective default, from ‘CC’.

The downgrade follows Afren’s announcement on Friday that lenders had agreed to defer a $50 million amortisation payment and that it would delay the payment of a $15 million bond coupon originally due on Feb. 1.

The company also said lenders of a $300 million revolving credit facility had agreed to defer repayment by a month.

“We downgraded Afren because it failed to pay its obligations under both its $300 million revolving credit facility (Ebok facility) and its bonds maturing in 2016 on time,” S&P said.

The agency also cut its long-term issue rating on Afren’s senior secured bonds maturing in 2016 to ‘D’ from ‘CC’.

“We consider nonpayment of a debt obligation on the due date as a default, and we believe that Afren’s repayment of principal and interest within the grace period is unlikely,” S&P said.

Afren was not immediately available for comment outside regular UK business hours.

Fitch cut its long-term rating on Afren to ‘C’ from ‘B’ last week.

Afren has received a preliminary approach from Nigeria’s Seplat Petroleum Development Co. Investors are waiting to see whether Seplat will make a firm offer for the company or walk away by a Feb. 13 deadline.

Afren’s shares, which once traded as high as 186 pence, closed down 6.3 percent at 10.9 pence on Wednesday.