Moody's Cuts Forbes Energy (FES) to 'Ca'; Outlook Lowered to Negative

Moody's Investors Service, ("Moody's") downgraded Forbes Energy Services Ltd.'s (Nasdaq: FES)(Forbes) Corporate Family Rating (CFR) to Ca from Caa2, its Probability of Default Rating to Ca-PD/LD from Caa2-PD, and its senior unsecured rating to Ca from Caa3. Moody's also affirmed the company's SGL-3 Speculative Grade Liquidity Rating. The ratings outlook was changed to negative from stable.

"The downgrade of Forbes's CFR and senior notes ratings reflects the increased likelihood of a near term restructuring following the company's failure to make its scheduled June 15, 2016 interest payment within the 30 day grace period and that the company had entered into a forbearance agreement with its noteholders," noted John Thieroff, Moody's Vice President. "The downgrade also incorporates our expectation for recovery on the unsecured notes of less than 50%." Moody's appended a limited default designation to Forbes's PDR because the missed interest payment is deemed an event of default. The "LD" designation will be removed from the PDR within a few days.

..Downgraded:

.... Corporate Family Rating, Downgraded to Ca from Caa2

.... Probability of Default Rating, Downgraded to Ca-PD/LD from Caa2-PD

.... Senior Unsecured Rating, Downgraded to Ca (LGD 4) from Caa3 (LGD 4)

..Outlook: Negative

..Affirmed:

.... Speculative Grade Liquidity Rating, affirmed at SGL-3

RATINGS RATIONALE

The Ca Corporate Family Rating (CFR) reflects Forbes' weak cash flow generation, driven by declining demand from upstream exploration & production (E&P) companies, and elevated financial leverage. The rating also incorporates the heightened potential for a financial restructuring in the near term following the company's announcement it had entered into a forbearance agreement with its unsecured noteholders resulting from its failure to make its June 15, 2016 interest payment within the 30-day grace period. A pronounced, protracted downturn in oil prices since late 2014 and the resulting diminished demand for its services has materially weakened Forbes' credit metrics. While Forbes's credit profile benefits from the its low maintenance capital requirements, the company's small scale and operational concentration are limiting factors.

The SGL-3 Speculative Grade Liquidity Rating reflects our view of adequate liquidity through mid-2017. At March 31, Forbes had $78 million of balance sheet cash and $49 million of availability under its $90 million secured borrowing base revolving credit facility, net of $10.7 million posted letters of credit. The facility contains a springing covenant, which becomes effective if utilization exceeds $75 million. If initiated, the covenant would require maintenance of a fixed charge ratio greater than 1.1x. While we expect that Forbes will not be able to comply with the covenant through mid-2017, the company is not expected to utilize the facility to the extent the covenant would become effective. The credit facility matures July 2018.

The negative outlook reflects the strong potential for a near-term restructuring of Forbes's unsecured notes on distressed terms. Ratings could be downgraded if Moody's view of recovery changes. Although not expected, ratings could be upgraded if the risk of restructuring abates.

The principal methodology used in these ratings was Global Oilfield Services Industry Rating Methodology published in December 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

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