Debt rating agency Standard & Poor’s on Tuesday lowered the corporate credit rating on Chesapeake Energy Corp. (NYSE: CHK) from CCC+ to CCC. But the ratings service did not stop there.

S&P also lowered its senior secured and recovery ratings on Chesapeake’s second-lien debt to CCC+ and 2, respectively, and removed the rating from CreditWatch with negative implications. The agency also lowered its issue-level rating on first-lien debt from B to B- and the senior unsecured rating from CCC to CC. The outlook is negative.

Chesapeake’s stock fell about 50% at one point on Monday after reports surfaced that the company was hiring advisors to help it with strategic alternatives, one of which was reported to be bankruptcy. The company denied the reports, but did say that its relationship with the law firm of Kirkland & Ellis aimed to improve its balance sheet.

Here’s what S&P analyst Paul Harvey said Tuesday:

The downgrade reflects the potential that Chesapeake could pursue a further debt exchange over the next 12 months and that we would view a transaction as distressed rather than opportunistic, and which we would consider a selective default. This follows the announcement that Chesapeake is working with Kirkland & Ellis LLP to improve its balance sheet and likely to help address upcoming maturities.

The report gets worse, saying that the negative outlook is based on the potential that Chesapeake would try to launch another exchange offer or some other refinancing that S&P would view as “distressed” and result in an SD (selective default) rating. The negative outlook also reflects S&P’s expectations that Chesapeake will remain weak for the next two years, based on the ratings agency’s energy price assumptions.

S&P expects debt leverage to exceed 12 times on average and further challenges to liquidity from “diminished cash flows and potential reductions” in Chesapeake’s borrowing base. The ratings firm also said that if Chesapeake does not improve liquidity or financial measures, ratings could be lowered further.

The new S&P debt rating on Chesapeake is eight notches below investment grade and qualifies as an extremely speculative investment. The next notch down would put the company in S&P’s category for companies on the brink of default with little prospect of recovering.

Shares of Chesapeake traded down more than 3% in the noon hour Tuesday, at $1.97 in a 52-week range of $1.50 to $21.29. The low was posted Monday.

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