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Rating Action:

Moody's assigns B3 corporate family rating to Global Geophysical Services

09 Jan 2007
Moody's assigns B3 corporate family rating to Global Geophysical Services

Approximately $130 Million of rated debt securities affected

New York, January 09, 2007 -- Moody's Investors Service assigned a first-time B3 corporate family rating (CFR) to Global Geophysical Services (Global) and a B3 probability of default rating (PDR). Based on the LGD notching methodology, Moody's assigned a B1 (LGD2; 28%) rating to Global's senior secured $30 million revolving facility and a $60 million first-lien term loan facility and a Caa1 (LGD5; 76%) rating to Global's $40 million second-lien senior secured term loan facility.

Proceeds from the two new term loans in conjunction with a $140 million investment from Kelso & Company will fund approximately $80 million of capex plans for 2007, refinance $56 million of existing debt, the tender of up to $90 million of existing preferred stock, redemption of $9.5 million of common stock, and about $5 million of fees. The Kelso investment is coming in stages, with $50 million already funded to cover the common stock redemption and capex and the remaining $90 million is come on a dollar for dollar basis only as the tendered preferred shares are redeemed. Assuming the full $90 million preferred equity tendered for is redeemed, Kelso will effectively own about 46.7%, with management owning about 33%.

The B3 CFR reflects Global's small size (though rapidly growing) and its market position compared to its B-rated peers and the inherent volatility in the seismic business as a result of cyclical exploration and production activity and the short operating track record which provides a higher than normal degree of uncertainty regarding downcycle performance. Partially offsetting this limited operating history is the seasoned management team most of which possesses more than 20 years of experience in the seismic business at some of the larger seismic companies.

The B3 CFR also reflects relatively higher geographic diversification than some of the B3 and B2 rated oilfield services peers as it has and continues to operate in multiple basins around the world but low diversity in its product line which is solely seismic data acquisition. In terms of leverage, Global's pro forma leverage with Debt/EBITDA of about 5.0x and Debt/Book Capitalization of approximately 60.71% for the new financing makes it comparable to its B rated peers and its return on assets (measured as EBIT/Assets) of about 10.99%. This is in the Ba rating range during the current upcycle.

The B1 rating of the first lien senior secured term loan and revolver reflects an LGD 2 loss given default assessment as these facilities are secured by a pledge of all of the company's assets and there is a significant amount (30%) of junior debt. The Caa1 rating of the $40 million 2nd lien term loan reflects an LGD 5 loss given default assessment given that it is contractually subordinated to the first lien facilities.

The stable outlook reflects Moody's expectation that leverage (Debt/EBITDA) will decline from its pro forma level (LTM 9/30/06) of about 5.0x over the next six to twelve months to at least within 2.5x during the upcycle. Moody's believes that lower leverage would better position the company in the event of a slow down in exploration and production activity which typically impacts seismic companies disproportionately. The outlook anticipates that any additional capex plans beyond current expectations are funded with either cash flow or equity and that debt reduction is ongoing. However, the outlook and/or ratings could be pressured if the company does not meet its projected earnings, cashflow, and leverage levels over the course of 2007.

A positive outlook would require the company to continue to establish its track record as a stand alone seismic company, that management has exceeded its projected earnings and cashflows, and continues to increase its scale to levels more compatible to its B3 rated peers while maintaining leverage within the 2.0x level.

Moody's believes that in 2007, Global will have adequate liquidity to fund approximately $94 million of planned capital expenditures, an estimated $10 million in interest expense and approximately $10 million of working capital needs. However, as a small and rapidly growing company, Global is prone to increase leverage that is needed for the necessary growth investment and in the event of a downturn, if earnings do not meet expectations, Global could face a potential liquidity problem.

Global is headquartered in Houston, Texas and is worldwide land, transition zone, and shallow marine seismic data acquisition services provider.

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

New York
Kenneth Austin
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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