Moody’s gives Ba3 to Kodiak, B2 to notes

Moody's Investors Service said it assigned new ratings to Kodiak Gas Services, Inc., including a Ba3 corporate family rating, a Ba3-PD probability of default rating and SGL-3 speculative grade liquidity rating. The agency also assigned a B2 rating to its planned senior unsecured notes to be issued by Kodiak’s subsidiary, Kodiak Gas Services, LLC. The outlook for both Kodiak Gas and Kodiak Gas Services is stable.

“Kodiak Gas's Ba3 CFR is supported by the scale and quality of its contract compression fleet, the stability of its margins, and expectations for ongoing growth in U.S. natural gas demand to continue driving demand for the company's compression services.

“The pending Compressco acquisition is incorporated into the assigned CFR and will meaningfully improve the company's scale, making it the largest contract compression services provider in the U.S. Compressco's lower percentage of large horsepower (>1,000 HP) assets will modestly dilute Kodiak Gas's asset quality, however, the pro forma fleet will remain of high quality with large horsepower assets comprising nearly 75% of its capacity,” Moody’s said in a press release.

However, Kodiak’s leverage constrains the rating, the agency said.

Kodiak Gas will initially use the proceeds to repay revolver borrowings, pay transaction costs, and for general corporate purposes. Upon closing of Kodiak Gas's pending acquisition of CSI Compressco LP, expected in the second quarter of 2024, Kodiak Gas will use the proceeds to retire Compressco's debt.

The outlook reflects the expectation that Kodiak Gas will continue delivering free cash flow, sustain good liquidity, and reduce leverage through organic growth and modest debt reduction, Moody’s said.

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