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
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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.
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John Thieroff
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
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Steven Wood
MD - Corporate Finance
Corporate Finance Group
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