U.K. Oilfield Services Company Expro's Proposed Senior Debt Assigned 'B' Issue Rating, '2' Recovery Rating
LONDON (Standard & Poor's) July 17, 2014--Standard & Poor's Ratings Services said today that it assigned its 'B' issue rating to the proposed $1,160 million term loan B facility due 2021 and $250 million revolving credit facility (RCF) and due 2019 to be issued by new subsidiaries of U.K.-based oilfield services company Expro Holdings U.K. 3 Ltd. (Expro; B-/Positive/--). We assigned a recovery rating of '2' to the proposed term loan and RCF, indicating our expectation of substantial (70%-90%) recovery in the event of a payment default. At the same time, we are affirming the 'CCC+' issue rating on Expro's $1,057 million mezzanine facility due in 2018. The recovery rating is unchanged at '5', indicating our expectation of modest (10%-30%) recovery in the event of a default. The issue and recovery ratings on the proposed senior secured term loan and RCF are based on preliminary information and are subject to the successful issuance of these facilities and our satisfactory review of the final documentation. We understand that Expro intends to use the proceeds of the proposed debt issuances to repay in full the $1.1 billion term loan D, which Expro swapped into senior secured notes, and the proposed RCF will replace the existing super senior RCF. We will withdraw the issue and recovery ratings on these instruments once the transaction is completed. We understand that Expro intends to complete this refinancing in advance of an IPO, which it estimates will take place in the second half of 2014. As part of the refinancing transaction, the company has a $360 million committed delayed draw facility. We understand that Expro will use these funds and the IPO proceeds to repay the mezzanine facility. Our calculation of recovery prospects are currently at the lower end of the range for the recovery ratings, and therefore the issuance of further senior secured debt could lead us to revise these ratings downward. However, this could be offset if the issuer's creditworthiness materially improves due to the IPO. RECOVERY ANALYSIS We understand that the proposed term loan and RCF will rank pari passu and we consider that they benefit from a comprehensive security and guarantee package, consisting of all the group's present and future assets, including material fixed assets and inventory. We understand that the draft documentation of the proposed facilities includes a net total leverage financial maintenance covenant, which will only be tested if the RCF is more than 30% drawn; restrictions on the incurrence of additional debt, payments, and liens; and change-of-control provisions. The documentation includes the committed $360 million delayed draw facility, proceeds from which can only be used for repayment of the mezzanine facility. The delayed draw facility is available for 120 days following the close of the proposed term loan refinancing transaction. Under our hypothetical default scenario for Expro, we project a payment default as a result of increasingly weak demand and pricing pressure. This would be due to intensifying competition in the coming years, limiting Expro's revenues and profitability. We value the company as a going concern to reflect its high market share in offshore subsea wells, the limited number of competitors, and the contract-based nature of its business. Simulated default assumptions:
- Year of default: 2017
- EBITDA at emergence: $213 million
- Implied enterprise value multiple: 6.0x
- Jurisdiction: United Kingdom
Simplified waterfall:
- Net value available to creditors (after 9% admin costs): $1.1 billion
- Priority claims: $50 million
- Senior secured debt claims: $1.4 billion
- --Recovery expectation: 70%-90%*
- Unsecured debt claims: $1.67 billion
- --Recovery expectation: 10%-30%*
*Priority claims include pension obligations and finance leases. RELATED CRITERIA AND RESEARCH
- Key Credit Factors For The Oil And Gas Exploration And Production Industry , Dec. 12, 2013
- Corporate Methodology, Nov. 19, 2013
- Revised Assumptions For Assigning Recovery Ratings To The Debt Of Oil And Gas Exploration And Production Companies, Sept. 14, 2012
- Criteria Guidelines For Recovery Ratings On Global Industrial Issuers' Speculative-Grade Debt, Aug. 10, 2009
Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.
| Primary Credit Analyst: | Christophe Boulier, Milan (39)-02-72111-226; christophe.boulier@standardandpoors.com |
| Secondary Contact: | Kathryn Archibald, London (+44) 2071767117; kathryn.archibald@standardandpoors.com |
| Additional Contact: | Industrial Ratings Europe; Corporate_Admin_London@standardandpoors.com |
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