S&P Raises Outlook on Willbros Group (WG) to Positive

Standard & Poor's Rating Services said today that it revised its rating outlook on Houston-based engineering and construction company Willbros Group Inc. (NYSE: WG) to positive from stable. At the same time, we affirmed our ratings on the company, including the 'B-' corporate credit rating.



The rating on specialty energy infrastructure contractor Willbros reflects our assessment of the company's "aggressive" financial risk profile and "vulnerable" business risk profile. Willbros serves the oil, gas, refining, petrochemical, and power industries, providing engineering, procurement and construction (either individually or as an integrated engineering, procurement, and construction service offering), turnarounds, maintenance, facilities development, and operations services. 



The rating incorporates the inherent cyclicality of the engineering and construction services sector in which Willbros participates. The operating losses associated with certain of the company's previous projects illustrate the inherent risks associated with the sector. Specifically, these risks include the sector's competitive nature, the economic and political risks in Willbros' upstream markets, and the potential for cost overruns in the execution of fixed-price contracts. 



The outlook is positive. Willbros used the proceeds from its recent asset sales to reduce debt leverage. "Despite its previous execution challenges, we expect that Willbros' gradually improving operating performance will enable the company to generate moderate free cash flow in 2014," said Standard & Poor's credit analyst Robyn Shapiro. "We also expect that the company will maintain at least 15% headroom under financial covenants in its credit agreement."



We could raise the rating during the next 12 months if the company continues to generate and sustain positive free cash flow. We would expect the company to maintain "adequate" liquidity, including at least 15% headroom under financial covenants, and to continue maintaining debt leverage at less than 5x.



We could revise the outlook to stable or negative during the next 12 months if Willbros' operating performance declines, causing liquidity to deteriorate so that ongoing cash outflows and covenant headroom to decrease to less than 10%. This could result from any unexpected execution challenges and project losses.

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