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01 Feb 2011
Assigns a B3 rating to proposed senior unsecured notes
New York, February 01, 2011 -- New York, February 2, 2011 -- Moody's Investors
Service changed the outlook for Basic Energy Services Inc. (Basic)
to stable from negative. Moody's assigned a B3 rating to
Basic's proposed $250 million of senior unsecured notes and
upgraded the rating of the existing 7.125% senior unsecured
notes to B3 from Caa1. Moody's also affirmed Basic's
B2 Corporate Family Rating (CFR) and assigned a SGL-2 Speculative
Grade Liquidity Rating. The new unsecured notes will be used to
tender for the existing 11.625% senior secured notes due
2014. Once the tender offer is completed and the senior secured
notes are retired, Moody's will withdraw the ratings for the
senior secured notes. Our ratings are based on the review of the
preliminary offering memorandum for the senior unsecured notes and the
proposed terms for a new senior secured credit facility, and therefore,
they are subject to review of the final documentation for these debt instruments.
"In 2009, an unusually harsh down-cycle in the oilfield
services business over-lapped with the disruption of the capital
markets. As a result, Basic was forced to restructure its
long term debt to maintain its liquidity," said Stuart Miller,
Moody's Senior Analyst. "The new unsecured notes along
with a new revolving credit facility represent a return to a more traditional
liability structure which will provide financial flexibility to support
the company's near-term business plan. With the cyclical
bottom clearly behind it, we have stabilized Basic's ratings
The move to a stable outlook incorporates the improving credit metrics,
which reflect the recovery in the company's financial performance
from the bottom of its business cycle. Despite this improvement,
Basic continues to report weak profitability and relatively high leverage.
An upgrade is unlikely in the short term and will likely not occur until
the company reduces leverage to less than 3.0x as measured by debt
to EBITDA. Continued negative EBIT margins and debt to EBITDA remaining
over 4.0x could lead to a negative outlook or a ratings downgrade
as these metrics suggest that Basic would be unprepared for, and
vulnerable to, the next industry down-cycle.
The B2 CFR reflects Basic's scale and potential for earnings volatility
in the future. Basic's future financial performance will
continue to be highly correlated to energy prices and general activity
levels in the oil and gas industry. The rating is supported by
Basic's position as one of the larger North American well service
providers with a menu of services available to a large and diversified
customer base. The portfolio of services offered and the number
of producing basins served helps to reduce volatility of earnings and
cash flow compared to smaller, regional competitors. In the
short term, continued tightening of oilfield services capacity should
lead to higher prices and higher utilization rates for Basic's equipment,
especially in the oily regions where the company has a presence.
These factors should allow Basic to repair its balance sheet, improve
profitability, and prepare for the next down-cycle.
The new unsecured notes and increased revolving credit availability will
provide more flexibility to manage the business and we expect to see additional
opportunistic, bolt-on acquisitions.
The B3 rating on the proposed $250 million senior unsecured notes
reflects both Basic's overall probability of default, to which
Moody's assigns a PDR of B3, and a loss given default of LGD 4 (63%).
The senior unsecured notes are notched one rating category lower than
the B2 CFR to B3 to take into account the priority of claim that the senior
secured revolving credit facility is entitled to in a liquidation or bankruptcy.
The company expects to close a new $165 million senior secured
revolving credit contemporaneously with the closing of the new senior
note issue and the retirement of the existing 11.625% senior
secured notes due 2014. The revolving credit will be unused at
closing. Based on the Basic's projected cash balances at
closing of approximately $36 million and the unused revolving credit,
we have assigned Basic a Speculative Grade Liquidity Rating of SGL-2.
The principal methodology used in this rating was the Global Oilfield
Services Industry rating methodology, published in December 2009.
Basic Energy Services, Inc. is headquartered in Midland,
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
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validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
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The date on which some Credit Ratings were first released goes back to
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Please see the ratings disclosure page on our website www.moodys.com
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of each rating category and the definition of default and recovery.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's changes Basic Energy Services Inc. outlook to stable from negative
250 Greenwich Street
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