Initial rating of $250 million of senior notes
New York, November 09, 2011 -- Moody's Investors Service assigned a Caa2 Corporate Family Rating (CFR)
to Green Field Energy Services, Inc. and a Caa2 rating to
its proposed offering of $250 million senior secured notes due
2016. The rating outlook is stable. The proceeds of the
offering will be used to fund capital expenditures, repay existing
debt and repay a prepayment from Shell Western Exploration and Production
Inc.
RATINGS RATIONALE
Green Field's Caa2 rating reflects the company's small size
and early stage in the hydraulic fracturing business, the main driver
of its capital spending program and growth profile. The rating
also reflects the company's high leverage relative to historical
cash flows and fixed assets and the need to establish performance credentials
as a leveraged company operating in the competitive, cyclical and
volatile oilfield services sector.
The Caa2 rating is supported by the company's access, via
an exclusive license, to certain hydraulic fracturing technology
and remanufactured turbines, the positive near-term environment
for the oilfield services sector, with hydraulic fracturing demand
currently exceeding supply, and early notable customer acceptance
of its turbine-powered fracturing equipment through a two spread
contract with Shell. Additionally, the company expects to
benefit from a degree of vertical integration and an additional revenue
source, with access to two sand mines through long term leases.
Green Field is one of the smallest oilfield service companies rated by
Moody's, as measured by its most recently reported total assets
and EBITDA. Leverage based on historical results also is among
the highest of all rated oilfield service peers. Green Field does
have material earnings and cash flow growth prospects over the near term.
However, there remains significant execution risk in both the company
delivering on its capital plan without material delays or cost increases
and also with respect to gaining additional customer acceptance of its
turbine-powered hydraulic fracturing technology.
The company has an adequate liquidity profile. Following the proposed
notes offering the company would have a sizable cash balance, but
much of it will be consumed by planned capital expenditures in excess
of cash flow through 2012 if the company meets its forecasts.
The CFR could be upgraded if the company is able to demonstrate a meaningful
improvement in earnings generation at reasonable margins and maintain
an adequate liquidity profile. Conversely, if the company
experiences significant delays in the delivery under its capital spending
program, weaker than expected earnings, or poor liquidity,
the ratings could be downgraded.
The Caa2 senior secured notes rating reflects both the overall probability
of default of Green Field, to which Moody's assigns a PDR of Caa2,
and a loss given default of LGD 3 (49%). The proposed $250
million senior notes will be secured by substantially all the assets of
the firm and will benefit from upstream subsidiary guarantees.
Green Field does not currently have a secured credit facility in place,
but the notes have a carve-out for a $30 million senior
credit facility, which if put in place, would be contractually
senior to the notes. Moody's notes that if the company obtains
a $30 million senior credit facility, the notes would not
be notched down from the CFR, as the notes would continue to comprise
the majority of Green Field's capital structure.
The principal methodology used in rating Green Field Energy was the Global
Oilfield Services Industry Methodology published in December 2009.
Please see the Credit Policy page on www.moodys.com for
a copy of this methodology.
Green Field Energy Services, Inc. is headquartered in Lafayette,
Louisiana
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by Extension and therefore available for regulatory use in the EU.
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this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
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Gretchen French
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
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Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
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JOURNALISTS: 212-553-0376
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Moody's rates Green Field Energy Services Caa2
