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01 Jun 2007
Moody's Assigns Ratings to Stallion Bank Facilities
Approximately $550 million of debt affected
New York, June 01, 2007 -- Moody's Investors Service assigned Ba2, LGD 2 (17%) ratings
to Stallion Oilfield Services Ltd.'s (Stallion) proposed $75
million senior secured term loan and $175 million senior secured
revolver. Moody's also affirmed Stallion's B2 corporate
family rating (CFR) and probability of default rating, and the B3
rating on its $300 million senior unsecured notes (LGD 5 (74%),
changed from LGD 4 (63%). The outlook is stable.
"While Moody's affirmed the B2 corporate family rating and
stable outlook, we are concerned with the scale and pace of Stallion's
acquisitions this year and the uncertainties surrounding the timing and
ultimate amount of equity funding to be raised in its planned IPO,"
commented Pete Speer, Moody's Vice-President/Senior
analyst. Should the IPO be delayed and the company funds the $280
million of pending July 2007 acquisitions entirely with debt, the
rating outlook will be changed to negative. If the IPO is indefinitely
deferred or the amount of equity raised is not sufficient to support the
B2 rating, then the CFR would be downgraded to B3 absent a substantial
equity contribution from Carlyle/Riverstone.
Proceeds from the term loan and revolver will be used to fund $100
million in acquisitions expected to close in the second quarter.
Simultaneously with the closing of the $75 million senior secured
term loan, Stallion will amend and restate its senior secured revolver
to increase its capacity from $125 million to $175 million.
The B2 CFR reflects the substantial valuation and performance risks inherent
in Stallion's rapid acquisition led growth and resulting high leverage,
partially offset by the company's strong niche market position.
Including the $100 million in 2nd quarter 2007 acquisitions and
the pending $280 million in 3rd quarter 2007 acquisitions,
Stallion will have completed approximately $400 million in acquisitions
in the first 7 months of 2007. This is in addition to approximately
$207 million of acquisitions completed in 2006. The ratings
are restrained by Stallion's short operating history that makes it difficult
to predict how the business will perform in a downturn and the cyclical
nature of Stallion's business, which is directly linked to the volatile
U.S. onshore drilling cycle.
The ratings remain supported by the strength of Stallion's market position
in the basins in which it operates, particularly workforce accommodations
where the company believes it currently has a 30% share of the
overall onshore drilling market in the United States and is more than
twice as large as its nearest competitor. The company has an experienced
management team with a history of successfully closing and integrating
acquisitions within the oilfield services sector. Stallion is controlled
by funds managed by Riverstone Holdings LLC and The Carlyle Group,
private equity firms with extensive energy industry investment experience.
Stallion has filed a registration statement with the SEC to sell up to
$400 million in common stock; approximately $300 million
of which management estimates would generate proceeds for Stallion with
the remainder being sales by existing shareholders. The ultimate
amount and timing of the equity offering, if any, is subject
to the SEC review process and uncertainties regarding market conditions
and pricing. If the IPO cannot be completed prior to the close
of the July 2007 acquisitions, then the company is contemplating
a $250 million senior unsecured term loan combined with revolver
borrowings to fund the acquisitions. The term loan could be fully
or partially retired with the proceeds from a subsequent IPO offering.
This uncertainty regarding the ultimate amount of equity funding for the
July 2007 acquisitions creates substantial uncertainty for Stallion's
The stable outlook is predicated on Stallion continuing to move forward
with its planned equity offering and is supported by Moody's expectation
that market conditions will remain supportive but no longer as buoyant
as the past two years. The recent decline in natural gas drilling
has affected Stallion's first quarter 2007 results but does not
appear to indicate a substantial and prolonged drop off in activity.
If Stallion is able to raise $250-$300 million of
equity then its position within the B2 CFR will be strengthened.
A positive outlook would then be possible after Stallion develops a track
record of successfully integrating and operating the acquired businesses
and maintains Debt/Capitalization below 60% and Debt/EBITDA below
2.5x in strong market conditions.
Stallion Oilfield Services Ltd., a private company headquartered
in Houston, TX, is a provider of wellsite support and construction
and logistic services to E&P companies and drillers throughout the
United States and offshore Gulf of Mexico.
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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