Moody's Downgrades SAExploration (SAEX) to 'Caa2'; Outlook Negative

Moody's Investors Service (Moody's) downgraded SAExploration Holdings, Inc.'s (Nasdaq: SAEX) Corporate Family Rating (CFR) to Caa2 from Caa1 and the rating on its notes to Caa2 from Caa1. The Speculative Grade Liquidity Rating was lowered to SGL-4 from SGL-3. The ratings outlook is negative.

"SAExploration's CFR was downgraded due to weak liquidity and our expectations that depressed industry conditions will negatively impact its cash flows in 2016," stated James Wilkins, a Moody's Vice President.

..Issuer: SAExploration Holdings, Inc.

Downgrades:

.... Probability of Default Rating, Downgraded to Caa2-PD from Caa1-PD

.... Corporate Family Rating, Downgraded to Caa2 from Caa1

....Senior Secured Regular Bond/Debenture, Downgraded to Caa2 (LGD 3) from Caa1 (LGD4 )

Lowered:

.... Speculative Grade Liquidity Rating, Lowered to SGL-4 from SGL-3

Outlook Actions:

....Outlook, Changed To Negative From Stable

RATINGS RATIONALE

SAEX's Caa2 CFR reflects the industry headwinds facing the company as well as its weak liquidity that will negatively impact its cash flows. Lower oil and natural gas prices have resulted in depressed market conditions and lower demand for its services in 2015-2016. The company's revenues declined 41% in 2015 compared to 2014, but EBITDA reported by the company was similar to 2014 levels and free cash flow was negative. Moody's expects 2016 capital spending by North American oil & gas exploration and production companies, which include some of SAEX's customers, will decline by more than 25% from 2015 levels, as oil and natural gas prices remain weak. This will result in continued pressure on SAEX's cash flows.

SAEX's ratings reflects its narrow business focus on early stage exploration and concession leasing activities which are inherently volatile, the small size of its asset and earnings base within the broader oilfield services industry, and the risky nature of its operations in remote and challenging geographic locations. It relies on a few customers for the majority of its revenues and has limited contract visibility beyond 12-18 months. The company's core seismic data acquisition services are subject to wide variations in customer demand and significant competition. However, SAEX benefits from having few competitors for its comprehensive packaged services in remote locations, multi-year relationships with many large upstream companies and exposure to several geographic markets.

The SGL-4 Speculative Grade Liquidity Rating reflects SAEX's weak liquidity. The company disclosed in its fourth quarter 2015 earnings release that $50.4 million in accounts receivable due from a customer is dependent on monetization of exploration tax credits provided by the State of Alaska. The timing of collection of funds by the customer and SEAX is uncertain. Due to the size of the receivable, SAEX may experience significant cash flow difficulties until the tax credits are monetized.

SAEX's liquidity is supported by its cash balances ($11.3 million as of 31 December 2015), funds from operations and $20 million asset-based revolving credit facility. The company's $20 million revolving credit facility, which is subject to a borrowing base calculation, had $7.9 million of borrowings at year--end 2015 and had $12 million of availability. The borrowing base is a function of 85% of eligible accounts receivable plus 85% of the net liquidation value of existing PP&E (subject to a $20 million maximum) less any reserves established by the lender. If the borrowings under the revolver exceed $5 million, SAEX is subject to a minimum rolling 12 months EBITDA requirement of $20 million on a consolidated basis and $8 million on the operations in Alaska. SAEX's alternative liquidity is weak given its small tangible asset base and the limited marketability and useful life of its equipment. The company benefits from not having any near-term debt maturities. The revolver matures on November 6, 2017, and the notes mature on July 15, 2019. We expect the company to refinance its revolver well before the maturity date.

The negative outlook reflects uncertainty over the company's liquidity. The ratings could be downgraded if liquidity deteriorated. The ratings could be upgraded if liquidity improved and interest coverage was expected to remain above 1.75x on a sustained basis.

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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