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S&P Downgrades CSI Compressco LP (CCLP) to 'B-'; Notes Continued Pressure on Nat Gas Prices

January 27, 2016 5:17 PM EST

Standard & Poor's Ratings Services lowered its corporate credit and senior unsecured debt ratings on CSI Compresscco L.P. (Compressco) (Nasdaq: CCLP) to 'B-' from 'B'. The outlook is stable.

The recovery rating on the senior unsecured debt remains '4', indicating expectations for average (50% to 70%; upper half of the range) recovery in a payment default.

"The downgrade reflects our expectation that Compressco's credit measures will weaken as natural gas producers reduce production in response to weak natural gas prices," said Standard & Poor's credit analyst Geoffrey Mrema. Standard & Poor's Ratings Services now expects natural gas prices to remain weak through at least the end of 2016. Although CSI Compressco benefits from having a large percentage of fee-based cash flows, it is still exposed to oil and gas industry capital spending, which tends to fall when commodity prices are low. In this low commodity price environment, we expect that producers may attempt to negotiate lower prices for services, like compression, which could put downward pressure on margins for Compressco. The combination of weak commodity prices, depressed unit prices for master limited partnerships (MLPs), and a challenging credit market will make it difficult for Compressco to fund external capital in a balanced manner to fund capital expenditures and distributions. We now forecast adjusted debt to EBTIDA of 5x to 5.25x compared to our previous expectations of adjusted debt to EBTIDA of about 4.5x.

The stable outlook reflects our expectation that CSI Compressco will optimize its fleet to minimize declines in utilization rates and aggressively manage costs while maintaining adequate liquidity.

We could lower the ratings if liquidity becomes constrained or if EBITDA decreases and we believe the capital structure could be unsustainable unless industry conditions improve.

We could raise the ratings if the partnership can maintain debt to EBITDA below 5x and adequate liquidity, particularly during these difficult market conditions.



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