S&P cuts Energy Services to B-, loan B

Standard & Poor's lowered its corporate credit rating on Energy Services Holdings LLC (ESH) to B- from B. The outlook is stable.

At the same time, S&P lowered its issue-level ratings on the company's $30 million revolver due 2019 and $125 million term loan due 2020 to B from B+. The 2 recovery rating remains unchanged, indicating the agency’s expectation for substantial (70%-90%; upper half of the range) recovery in the event of a payment default.

“The downgrade reflects our view that low oil prices have negatively affected Energy Services Holdings LLC's operating performance by more than we had previously expected, causing the company's adjusted debt-to-EBITDA ratio to increase above 5.0x,” said S&P credit analyst Noel Mangan in a news release.

“In addition to lower overall sales, ESH's contracts have shifted from the more profitable upstream market to lower margin downstream work.”

Based on S&P’s oil and natural gas price assumptions, it expects Energy Services will face a challenging operating environment as its customers delay their maintenance work and pursue pricing concessions in an attempt to reduce costs. The agency believes that the company will maintain adjusted EBITDA margins in the 6% to 8% range while generating positive FOCF.

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