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10 Dec 2007
Moody's rates Global Geophysical Services' new credit facilities
Approximately $200 Million of Rated Debt Affected
New York, December 10, 2007 -- Moody's assigned a B2 rating and LGD 3 (37%) to Global Geophysical
Services, Inc.'s (GGS) the company's new $150
million first lien senior secured credit facilities ($30 million
revolving credit facility and $120 million term loan) and a Caa2
rating and LGD 5 (87%) to the company's $50 million
second lien term loan. Simultaneously, Moody's affirmed
B3 corporate family rating (CFR) and the B3 probability of default rating
(PDR). The outlook remains stable.
Proceeds from the new term loans will be used to refinance the existing
term loans and revolver borrowings. The new term loans will also
fund up to $10 million of stock repurchases for employees wishing
to monetize a portion of their holdings, and growth capex of nearly
$40 million. Moody's will withdraw the ratings on
the existing first lien and second lien facilities upon closing of the
The ratings for the secured credit facilities loan reflect both the overall
probability of default of the company which is B3, and a loss given
default of LGD 5. The first lien facility is rated one-notch
above the CFR reflect a lower expected loss driven largely by the additional
debt cushion (support) provided by the $50 million second lien
term. This second lien term loan is rated two notched below the
CFR due to higher expected loss given the relative junior position in
the pro forma capital structure.
The affirmation of the B3 rating reflects the company's progress
in meeting its aggressive growth targets in terms of crew size,
revenues, and EBITDA over the past two years. The B3 also
reflects the seasoned management team with long sector experience and
currently supportive industry fundamentals which are expected to remain
favorable into 2008 as the company moves forward on its ambitious growth
plans. The company's current backlog of business adds support
to the rating as it creates visibility of projected earnings and cashflows
into the 2008.
The B3 also considers the company's still young history with a still
limited operating track record, particularly during softer market
conditions. The sector possesses inherent volatility in the business,
and margins can be particularly pressured in weaker market conditions,
which in turn could have a disproportionate impact on GGS' earnings
and cashflows. The B3 also factors in the aggressive growth strategy
that is utilizing a fairly high level of debt that is expected to remain
high over the near term. Although this debt is helping fund growth,
a portion is also partially funding a stock repurchase. While the
repurchase is being done to provide liquidity for employees and not simply
management or the equity sponsor Kelso cashing in a portion of their ownership
position, it is nonetheless a debt funded repurchase that is adding
leverage to the company without any additional cash flow in return.
Despite its significant growth and its niche position within the industry,
GGS remains relatively small compared to some of its peers and considerably
smaller than the larger players in the sector. In addition,
the company is focused on the land and transition zone markets,
which are currently solid, however, those markets still lag
the marine market in terms of activity and margin expansion and in Moody's
view has a higher likelihood of facing pressure over the medium term compared
to the marine market.
The stable outlook assumes the company continues to meet its earnings
and growth targets and reduces leverage ahead of less supportive sector
fundamentals. It also assumes that the company's entrance
into the data library part of the business continues to carry substantial
pre-funding levels so as not put a significant amount of GGS'
capital at risk. The stable outlook also assumes that as the company
potentially looks to diversify into the 2-D streamer market.
It also assumes it does not take on significant newbuild risk and would
fund this endeavor with some equity so as not to add significant leverage.
A positive outlook and/or upgrade would be considered if the company reduces
total debt and maintains upcycle leverage in under the 3.0x range
with continued momentum for further debt reduction especially given the
inherent volatility of the business. A positive outlook and/or
upgrade would also be considered if the company were to pursue any consolidation
opportunities with ample equity funding. However, if the
company were to complete a substantially debt funded acquisition it could
pressure the outlook and/or ratings.
The company's liquidity position is adequate given the company will
have a $30 million undrawn revolver at close with the expectation
that it will remain undrawn over the next twelve months. Although
the company is aggressively growing the number of crews it operates,
this financing along the expected cash flows over the next year are expected
to cover those capital outlays. In addition, since this business
is not very capital intensive, GGS maintains significant flexibility
in its capital spending program and curtail it fairly easily to preserve
Global Geophysical Services, Inc. is headquartered in Houston,
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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