Pioneer Energy Services (PES) Ratings Affirmed by S&P; Sees Being Able to Maintain Debt/EBITDA Level

Standard & Poor's Ratings Services today affirmed its 'B+' corporate credit and issue-level ratings on Pioneer Energy Services Corp. (NYSE: PES). The outlook is stable. The recovery rating on the company's senior notes remains '4', indicating average (30% to 50%; at the upper half of the range) recovery in the case of a payment default.

"Our revision of the liquidity assessment on Pioneer Energy Services primarily reflects our expectation of lower EBITDA generation in 2015 and, as a result, less cushion vis á vis the leverage covenant governing the company's revolving credit facility," said Standard & Poor's credit analyst Christine Besset. "Our revision of the comparable ratings analysis modifier to neutral from negative reflects our view that the company's credit profile is in line with 'B+' rated peers," she added.

Pioneer provides contract drilling and oilfield services to exploration and production (E&P) companies primarily in the U.S., with some exposure to the Republic of Colombia. We consider Pioneer's business risk to be "vulnerable," reflecting its competitive position in the volatile onshore contract drilling and oilfield services sector. We view the company's financial profile as "significant," reflecting our expectation that the company's currently solid credit ratios will weaken as a result of lower cash flow generation in light of challenging market conditions. Nevertheless, we expect Pioneer's core debt ratios to remain within expectations for the rating category, with funds from operations (FFO) to debt of about 20% and debt to EBITDA of about 4x on average over the next three years. In our view, Pioneer's liquidity is "adequate."

The stable outlook on Pioneer Energy Services Corp. reflects Standard & Poor's Ratings Services' assessment that the company will be able to maintain debt to EBITDA at about 4x and FFO to debt of about 20% on average over the next three years, despite challenging market conditions.

We would consider a downgrade if the company's operating performance deteriorates such that leverage exceeds 4x, or FFO to debt falls below 20%, for a prolonged period of time. This would most likely result from steeper than expected decline in market demand for oilfield services or a longer than expected industry downturn.

Given current market conditions and our expectation of weakening credit ratios in the next few quarters, we do not anticipate an upgrade during the next 12 months. However, we could raise the rating if Pioneer were able to significantly increase its scale and diversity of operations while keeping FFO to debt below 20%.

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