Basic Energy Services (BAS) Downgraded to 'CCC+' by S&P; Outlook Negative

Standard & Poor's Ratings Services lowered its corporate credit rating on Basic Energy Services Inc. (NYSE: BAS) to 'CCC+' from 'B-'. The outlook is negative.

At the same time, we lowered our issue-level ratings on the company's senior unsecured notes to 'CCC+' from 'B-'. We revised the recovery rating on the unsecured notes to '4', indicating meaningful (lower half of the 30%-50% range) recovery in the event of a payment default, from '3'. We also assigned our 'B' issue-level rating and '1' recovery rating to the company's new $165 million secured term loan, indicating very high (90%-100%) recovery in the event of a payment default.

"The downgrade reflects our expectation for a more prolonged and severe downturn in the U.S. oilfield services industry than previously expected as a result of a protracted fall in oil prices," said Standard & Poor's credit analyst Christine Besset.

Activity in the U.S. oil and natural gas exploration and production industry has sharply deteriorated throughout 2015, and continuing into 2016, because many U.S. E&P companies halted or slowed their drilling activity in response to low oil prices. Consequently, Basic's revenues declined 46% year over year in 2015. We estimate FFO will be negative and debt/EBITDA will remain in excess of 15x for 2016 and 2017. Additionally, we estimate that EBITDA will be insufficient to meet interest expense and capital spending needs.

The negative outlook reflects our expectation that Basic's liquidity position will likely deteriorate in the coming year given our weak outlook for commodity prices and drilling activity onshore North America.

We could revise the rating outlook to stable if market conditions in the onshore North American oil and gas industry improved such that we expect Basic to generate enough cash flow to cover interests and maintenance capital spending on an ongoing basis, and stabilize its liquidity position.

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