Moody's ups Key Energy Services' liquidity rating

Moody's Investors Service said it upgraded Key Energy Services' speculative grade liquidity rating to SGL-2 from SGL-3.

Moody's said the upgrade reflects the company's solid cash flow outlook in 2004; additional availability under its recently expanded revolving credit facility that contains a company option for further expansion; ample room under the covenant requirements of the credit facility, ensuring revolver availability over the next 12 months; and a track record of generating cash flow from operations to cover ordinary capital spending and interest expense.

The rating is tempered by the pending redemption of Key's 14% notes in January 2004, which will use nearly all balance sheet cash and likely require borrowings under the credit facility.

Moody's said the SGL rating is further restrained by the covenant tests that become tighter in fourth quarter 2004; limited readily accessible alternative sources of liquidity due to the pledging of assets to its banks; and the expected use of up to 40% ($75 million) of the company's $175 million revolver for letters of credit issuance.

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