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Rating Action:

Moody's Assigns SGL-2 rating to Complete Production

27 May 2010

Initial assignment of Speculative Grade Liquidity Rating

New York, May 27, 2010 -- Moody's Investors Service assigned a Speculative Grade Liquidity (SGL) rating of SGL-2 to Complete Production Services, Inc. (Complete). Moody's also affirmed Complete's Ba3 Corporate Family Rating (CFR) and the B1 rating on its $650 million senior unsecured notes due 2016. The outlook is stable.

"Complete generated substantial cash flow from working capital through the 2009 downturn that was used for debt reduction and building a sizable cash balance," commented Pete Speer, Moody's Vice President. "The company's cash on hand and committed credit facilities provide it with good liquidity to fund working capital needs as its earnings improve this year."

The SGL-2 rating reflects our expectation that Complete will maintain good liquidity over the next twelve months. The company had $105 million of cash and $114 million of availability on its borrowing base credit facilities at March 31, 2010. Based on a our expectation of flat to slightly up earnings over the remainder of 2010 and a $44 million tax refund received in April 2010, Complete should generate sufficient operating cash flow to cover its working capital and planned capital expenditures. If earnings were to strengthen more than expected, the company has ample cash and revolver capacity to fund the growth in working capital. The fixed charge coverage financial covenant only becomes operative if the availability on the credit facilities and qualified cash (as defined in the agreement) falls below $50 million, giving the company ample headroom. Substantially all of the company's assets are encumbered by the credit facilities, limiting Complete's alternative liquidity.

Complete's stable outlook is based on our expectation that Complete's earnings improvement in the first quarter of this year will be sustained for the remainder of 2010, returning its leverage metrics back to levels consistent with its Ba3 CFR. However, we are concerned that weak natural gas prices could result in a decline in onshore drilling activity in the second half of this year that could make current earnings levels difficult to maintain. If Complete's earnings were to decline from current run rates or the company were to make acquisitions resulting in Debt/EBITDA exceeding 4x then the outlook could be changed to negative or the ratings downgraded.

A severe downturn in demand for Complete's services resulted in 2009 EBITDA declining by about 67% from 2008 levels to approximately $175mm. A large reduction in working capital and capital spending more than offset the reduced earnings and resulted in substantial free cash flow generation during 2009. This enabled Complete to pay down all $194 million of outstanding revolver borrowings during 2009 and increase its cash balances. The company also proactively amended its $400 million of revolving credit facilities to borrowing base facilities with a total committed capacity of $240 million. While this lowered the committed credit capacity, the amendment greatly reduced the risk of future debt covenant violations and increased the company's effective borrowing capacity.

Despite the debt reduction during 2009, Complete's Debt/EBITDA more than doubled since the end of 2008 to about 4.7x for the twelve-months ended March 31, 2010. Due to a significant increase in drilling activity that began in late 2009, Complete's first quarter 2010 EBITDA was approximately $62 million, a sequential increase of nearly 60% over the fourth quarter of 2009. At this earnings run rate, the company's Debt/EBITDA is around 3.2x, which is more consistent with a Ba3 rating.

The last rating action was on January 13, 2009, when Complete's CFR was upgraded to Ba3 from B1 and its senior unsecured notes were upgraded to B1 from B2.

The principal methodology used in rating Complete was Moody's Global Oilfield Services Rating Methodology, published in December 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research and Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Complete Production Services, Inc., headquartered in Houston, Texas, is a provider of oilfield services and products to exploration and production companies operating in North America.

New York
Peter Speer
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Steven Wood
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Assigns SGL-2 rating to Complete Production
No Related Data.
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