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Related Issuers
Rating Action:

Moody's upgrades CSI Compressco's PDR to Caa1-PD; outlook changed to stable

14 Jul 2020

New York, July 14, 2020 -- Moody's Investors Service (Moody's) upgraded CSI Compressco LP's (Compressco) Probability of Default Rating (PDR) to Caa1-PD from Ca-PD. At the same time, Moody's affirmed Compressco's Caa1 Corporate Family Rating (CFR), its B3 senior secured first lien notes rating, and its Caa3 senior unsecured notes rating. The outlook was changed to stable from negative.

The PDR upgrade reflects the company's reduced probability of default following completion of the company's debt exchange.

Upgrades:

..Issuer: CSI Compressco LP

.... Probability of Default Rating, Upgraded to Caa1-PD from Ca-PD

Affirmations:

..Issuer: CSI Compressco LP

.... Corporate Family Rating, Affirmed Caa1

....Senior Secured Notes, Affirmed B3 (LGD3)

....Senior Unsecured Notes, Affirmed Caa3 (LGD6)

Outlook Actions:

..Issuer: CSI Compressco LP

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

Compressco's Caa1 CFR reflects the company's continued high debt balances and weak leverage metrics and the company's small compressor fleet relative to its rated peers. The company's recently completed debt exchange, in which it issued $155.5 million in second lien notes due 2026 and a $50 million tack on to its existing first lien notes due 2025 in exchange for $215 million of its senior unsecured notes due 2022, did little to reduce its overall debt burden and nominal interest expense. However, the second lien notes provide the ability to make PIK interest payments and the exchange has improved Compressco's overall debt maturity profile.

Compressco's utilization and pricing will suffer in 2020 as its E&P customers seek to slash their operating and capital budgets in the face of a historic collapse in oil prices. The company has taken fast and aggressive actions to staunch losses and preserve cash, including substantial workforce reductions, compensation cuts, a large drop in capital spending and potential asset sales. Still, Moody's expects 2020 EBITDA to approximate $90 million, resulting in adjusted debt/EBITDA between 6.5x and 7x, with the likelihood that elevated leverage could persist through 2021. Relative to other oilfield service providers, Compressco benefits from comparatively stable cash flows, underpinned by services that enhance oil and gas production and are more likely to remain in use during a downturn than drilling or completion-oriented equipment, and Moody's expects the company to generate modest free cash flow in 2020. The company's shift in recent years to a higher proportion of large horsepower compression units should help limit the impact on margins and utilization compared to the 2015/16 downturn.

Compressco's senior secured first lien notes are rated B3, one notch above the Caa1 Corporate Family Rating (CFR), reflecting their priority claim to Compressco's assets, excluding the assets securing the asset-based revolver. The Caa3 rating on Compressco's senior unsecured notes, two notches below the CFR, reflects their junior position in the company's capital structure to Compressco's much larger first lien notes and second lien notes (unrated) outstanding.

Compressco' SGL-3 Speculative Grade Liquidity Rating reflects adequate liquidity into mid-2021, given the company's minimal cash requirements. The company had $7.4 million in cash as of March 31, 2020. As of May 5, 2020, Compressco had $16 million of availability under its $35 million asset-based revolving credit facility, which matures in June 2023. Moody's expects Compressco to generate a modest amount of free cash flow in 2020 and not need to rely on the revolver. Following an amendment earlier this month, the revolver no longer has financial covenants. The company's next debt maturity is in 2022 when the senior unsecured notes mature. Compressco had previously indicated an intent to sell its Midland fabrication facility. Additionally, Compressco has historically sold a limited amount of used or idle assets that could generate incremental liquidity and might do so in the future.

The stable outlook reflects Moody's expectation that Compressco's customers will gradually begin restoring shut-in production and that utilization rates will bottom in the third quarter and gradually improve from that point. The stable outlook also considers the likelihood that Compressco will not face a significant amount of additional pricing concessions.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Ratings could be downgraded if liquidity deteriorates significantly, interest coverage falls below 2x, or debt/EBITDA rises above 7x. A ratings upgrade is not likely in the near term, however ratings could be upgraded if debt/EBITDA falls below 5.5x and EBITDA is sustained above $110 million.

The principal methodology used in these ratings was Global Oilfield Services Industry Rating Methodology published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062654. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

John Thieroff
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

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