Fitch rates Kodiak Gas notes B

Fitch Ratings said it assigned a first-time long-term issuer default rating of B to Kodiak Gas Services, LLC, along with a B rating with RR4 recovery rating to the company's proposed offering of senior unsecured notes due 2027.

The RR4 rating on the proposed senior unsecured notes reflects an expectation for average recovery at the upper end of the 31% to 50% range for the debt security in the event of a default, Fitch explained.

The outlook is stable.

The company was acquired by EQT Infrastructure III Fund from the Stephens Group in February for $1.1 billion, the agency explained.

In association with the transaction, Kodiak Gas is expected to issue a new $1 billion asset-based lending credit facility and $400 million of senior unsecured notes to repay and terminate its existing ABL credit facility.

The ratings are reflective of the company's high leverage level in the near term, driven by its planned sizable capital expenditure program that requires drawdown on its ABL for funding, Fitch said.

Fitch said it forecasts the company's 2019 and 2020 leverage will be sustain at higher than 6x.

A strong execution on the expansion projects will be required given the existing covenant requirements, the agency said.

The ratings also recognize that Kodiak's cash flow stability is supported by fee-based contracts and high utilization rates.

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