Moody's Affirms Basic Energy (BAS) Ratings, Outlook Stable
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Moody's Investors Service (Moody's) affirmed Basic Energy Services, Inc.'s (NYSE: BAS) B1 Corporate Family Rating (CFR), B2 senior unsecured note rating and SGL-2 Speculative Grade Liquidity Rating. The rating outlook remains stable.
"Softer than expected oilfield services industry conditions since mid- 2012 have significantly raised Basic's financial leverage, but gradually improving market conditions and management's focus on managing the business within cash flow should improve the company's leverage metrics in 2014," commented Sajjad Alam, Moody's Analyst. "Basic's adjusted debt/EBTIDA was 4x at September 30, 2013, which we consider high for the B1 CFR level given the company's scale and volatile operating environment. Any increase in leverage in 2014 will likely lead to a negative outlook."
Issuer: Basic Energy Services, Inc.
Affirm:
.... Corporate Family Rating, Affirm B1
.... Probability of Default Rating, Affirm B1-PD
.... Senior Unsecured Regular Bond/Debenture, Affirm B2 (LGD4, 61%)
.... Speculative Grade Liquidity Rating, Affirm SGL-2
Outlook Action:
.... Maintain Stable Outlook
RATINGS RATIONALE
The B1 CFR reflects Basic's scale, its broad suite of well site service offerings, a diversified customer base, and its market position as a mid-size player in the fragmented oilfield services industry. Notwithstanding its concentration in the Permian Basin, the company has a wider geographic presence compared to smaller, regional competitors and continues to augment its footprint through organic initiatives and tuck-in acquisitions in active liquids-rich drilling basins. The rating is negatively affected by Basic's elevated leverage in recent quarters, relatively small tangible asset base, the inherent volatility in its revenues and cash flows because of the highly cyclical demand for oilfield services, and the company's acquisitive nature.
Basic should have good liquidity through 2014, which is captured in the SGL-2 rating. The company plans to cover its capex and acquisition expenditures with operating cash flow in the coming quarters. At September 30, 2013, Basic had $100 million in cash and cash equivalents and $212 million of revolver availability. The company pro-actively amended the financial covenants in its credit agreement in August 2013 that should provide sufficient covenant cushion throughout 2014. However, a sharp deterioration in pricing or equipment utilization could require further negotiations with the banks.
The stable outlook assumes Basic's leverage will trend down over the next several quarters. A downgrade could result if the company is unable to sustain leverage below 4x. An upgrade would depend on improved scale and breadth of Basic's service offerings, greater geographic diversity and its ability to sustain debt to EBITDA below 2.5x.
The principal methodology used in rating this issuer was the Global Oilfield Services Rating Methodology published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
"Softer than expected oilfield services industry conditions since mid- 2012 have significantly raised Basic's financial leverage, but gradually improving market conditions and management's focus on managing the business within cash flow should improve the company's leverage metrics in 2014," commented Sajjad Alam, Moody's Analyst. "Basic's adjusted debt/EBTIDA was 4x at September 30, 2013, which we consider high for the B1 CFR level given the company's scale and volatile operating environment. Any increase in leverage in 2014 will likely lead to a negative outlook."
Issuer: Basic Energy Services, Inc.
Affirm:
.... Corporate Family Rating, Affirm B1
.... Probability of Default Rating, Affirm B1-PD
.... Senior Unsecured Regular Bond/Debenture, Affirm B2 (LGD4, 61%)
.... Speculative Grade Liquidity Rating, Affirm SGL-2
Outlook Action:
.... Maintain Stable Outlook
RATINGS RATIONALE
The B1 CFR reflects Basic's scale, its broad suite of well site service offerings, a diversified customer base, and its market position as a mid-size player in the fragmented oilfield services industry. Notwithstanding its concentration in the Permian Basin, the company has a wider geographic presence compared to smaller, regional competitors and continues to augment its footprint through organic initiatives and tuck-in acquisitions in active liquids-rich drilling basins. The rating is negatively affected by Basic's elevated leverage in recent quarters, relatively small tangible asset base, the inherent volatility in its revenues and cash flows because of the highly cyclical demand for oilfield services, and the company's acquisitive nature.
Basic should have good liquidity through 2014, which is captured in the SGL-2 rating. The company plans to cover its capex and acquisition expenditures with operating cash flow in the coming quarters. At September 30, 2013, Basic had $100 million in cash and cash equivalents and $212 million of revolver availability. The company pro-actively amended the financial covenants in its credit agreement in August 2013 that should provide sufficient covenant cushion throughout 2014. However, a sharp deterioration in pricing or equipment utilization could require further negotiations with the banks.
The stable outlook assumes Basic's leverage will trend down over the next several quarters. A downgrade could result if the company is unable to sustain leverage below 4x. An upgrade would depend on improved scale and breadth of Basic's service offerings, greater geographic diversity and its ability to sustain debt to EBITDA below 2.5x.
The principal methodology used in rating this issuer was the Global Oilfield Services Rating Methodology published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
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