Standard & Poor's rates Penn Virginia 'BB-'

Standard & Poor's Ratings Services on Thursday assigned a "BB-" corporate credit rating to oil and natural gas company Penn Virginia Corp., saying U.S. natural gas producers face a challenging near-term outlook.

The rating is three notches into junk status.

The ratings agency said Penn Virginia's outlook was stable and also assigned a "BB-" rating to the company's proposed $250 million senior unsecured notes due 2016. It gave the debt a recovery rating of "3," indicating expectations for a meaningful _ 50 percent to 70 percent _ recovery of payment in case of a default.

Standard & Poor's assigned a "B" rating _ two notches below the the corporate credit rating _ to Penn Virginia's existing $230 million 4.5 percent convertible senior subordinated notes due 2012. The agency gave that debt a recovery rating of "6," indicating expectations of negligible recovery in a default.

It said Penn Virginia has $534 million in debt, excluding debt at its partially owned master limited partnership, Penn Virginia Resources Partners LP.

"The ratings on (Penn Virginia) reflect the (oil and gas exploration and production) industry's highly capital intensive and cyclical nature; Penn Virginia's limited scale and product diversity; and our view that U.S. natural gas prices are likely to remain weak in the near term," Standard & Poor's credit analyst David Lundberg said in a statement.

"The ratings also reflect Penn Virginia's competitive cost structure; relatively moderate financial leverage; and the benefit received from the dividends upstreamed from Penn Virginia Resources Partners," he added.

Shares of Penn Virginia fell 78 cents, or 3.7 percent, to $20.53 in after-hours trading. During the regular session the stock rose $1.21, or 6 percent, to close at $21.31.