Moody’s lowers SESI notes to junk

Moody’s Investors Service said it downgraded SESI, LLC’s senior unsecured notes to B2 from Baa3 with a negative outlook.

Moody’s also said it assigned a B1 corporate family rating to the company.

The downgrade reflects an expectation of significantly weaker cash flow and credit metrics through 2017 and the elevated risks of a potential covenant breach in the second half of 2016, the agency said.

Moody’s recently completed a review of seven U.S. oilfield services companies that led to several downgraded companies. Oil prices have dropped substantially, reflecting continued oversupply in the global oil markets, very high inventory levels and additional Iranian oil exports coming on line, Moody’s said.

The agency said it expects pricing and utilization for SESI’s products and services to remain depressed due to low upstream capital spending and industry-wide overcapacity.

Despite amending its financial covenants in early 2016, Moody’s said it believes the company may have to renegotiate the covenants.

The company’s ratings are supported by SESI’s scale and diversification across most U.S. basins and its $564 million of cash, the agency said.

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