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31 Aug 2010
Approximately $300 million of rated debt affected
New York, August 31, 2010 -- Moody's Investors Service downgraded Geokinetics Holdings,
Inc.'s (Geokinetics) Corporate Family Rating (CFR) to B3
from B2 and its $300 million senior secured notes to B3 from B2.
The CFR and notes rating have been placed under review for possible further
downgrade. Moody's also assigned a SGL-4 Speculative
Grade Liquidity (SGL) rating.
"The downgrade to B3 is driven by Geokinetics' higher than
expected revenues volatility in international markets and consequently
weaker leverage metrics," commented Pete Speer, Moody's
Vice-President. "The review of the ratings for further
downgrade highlights the company's potential covenant violations
at the end of the third quarter and tight liquidity."
Geokinetics' earnings and cash flows in the first half of 2010 have
fallen well below management's forecasts when we assigned the ratings
in December 2009. While the company's acquisition of the
onshore business of Petroleum Geo-Services ASA (PGS) has yielded
additional revenues in North America, revenues from international
markets have declined 39% compared to the first six months of 2009.
The company has reported sequential increases in backlog that point to
increasing revenues in the second half of this year and in early 2011.
However, even if the earnings improvement is achieved we believe
the company's leverage metrics will only improve to levels consistent
with a B3 CFR.
The SGL-4 rating reflects the likelihood that the company will
not comply with its debt covenants at September 30, 2010 and will
require a waiver from its banks. Effective June 30, 2010,
Geokinetics and its banks agreed to amend its revolving credit facility,
modifying the covenants as of June 30 and September 30, 2010 and
reducing the facility size to $40 million from $50 million.
The company now expects to not comply with the amended September 30 debt
covenants and is currently in discussions to amend the facility again
or obtain a waiver.
Geokinetics reported $41 million of cash and $9 million
of borrowings on its revolving credit facility at June 30, 2010.
While the company expects to have higher earnings in the second half of
this year, it also plans to make significant capital expenditures
and multi-client investments over that period. In order
for Geokinetics to fund these investments and manage its working capital
requirements, we believe that the company needs continued access
to its revolver to maintain adequate liquidity. The ratings review
will focus on Geokinetics' progress in obtaining the necessary amendment
or waiver and the company's third quarter trends in earnings and
Issuer: Geokinetics Holdings, Inc.
Probability of Default Rating, Downgraded to B3 from B2
Corporate Family Rating, Downgraded to B3 from B2
Senior Secured Regular Bond/Debenture, Downgraded to B3 from B2
Issuer: Geokinetics Holdings, Inc.
Speculative Grade Liquidity Rating, Assigned SGL-4
Issuer: Geokinetics Holdings, Inc.
Outlook, Changed To Rating Under Review From Stable
The principal methodologies used in rating Geokinetics Holdings,
Inc were Global Oilfield Services Rating Methodology published in December
2009 and Loss Given Default for Speculative-Grade Non-Financial
Companies in the U.S., Canada and EMEA published in
June 2009. Other methodologies and factors that may have been considered
in the process of rating this issuer can also be found on Moody's website.
Geokinetics Holdings, Inc. is headquartered in Houston,
Texas and is a wholly owned subsidiary of Geokinetics Inc. The
company is a global provider of seismic data acquisition and seismic data
processing and interpretation services.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information,
confidential and proprietary Moody's Analytics' information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's Investors Service adopts all necessary measures so that the information
it uses in assigning a credit rating is of sufficient quality and from
reliable sources; however, Moody's Investors Service does not
and cannot in every instance independently verify, audit or validate
information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's downgrades Geokinetics to B3, ratings under review
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