Ensign Drilling Inc. was downgraded today by S&P Global Ratings to Selective Default, or SD, from CCC+ and a negative outlook, after the company bought back "a meaningful portion" of its 9.25% senior notes due April 2024 in the past few quarters at prices significantly below par. The notes were downgraded as well, to D, from CCC+.

The company repurchased US$198.7 million of its senior notes during 2020 for an average price of roughly 39% of par, representing around 28% of the US$700 million bond issue and 16% of Ensign's year-end 2019 total debt, according to Ratings.

Ratings said Ensign's credit quality deteriorated in 2020 because of weak oil and natural gas prices, adding that the company's weak credit profile reflects its high leverage and constrained liquidity. Ratings views the bond repurchases as "a distressed transaction and default" since investors received less than they were originally promised.

The 9.25% senior notes recently traded around 80.

Calgary-based Ensign provides land drilling rigs, well services and directional services in North America, South America, the Middle East and Australia.