Liquidity Concerns Hamper NES; Reduced Debt Raises Key Energy

National Equipment Services' senior secured bank credit facility has been lowered to CCC by Standard & Poor's due to concerns regarding the company's liquidity and upcoming loan maturities. S&P also placed the ratings on watch with negative implications. The downgrade reflects the belief that NES may not be able to refinance or extend maturities on its $550 million line of credit due in July, or meet its upcoming $14 million interest payments on its subordinate notes in May. "The company has significant maturities and liquidity issues," said John Sico, analyst at S&P. Calls to company officials were not returned.

According to an 8-K filing, on March 21 the Evanston Ill.-based equipment rental company has already amended the facility nine times and has been given an extension of its forbearance agreement until May 14. The financial covenant relief so far granted by the banks has resulted in restricted access to the company's credit line. The bank debt was trading actively earlier this month with a $20 million piece changing hands in the 64 context and another $14-15 million block moving in the low 60s (LMW, 3/16).

* Key Energy Services' revolving credit has been upgraded one notch by Moody's Investors Service, rising to Ba1 with a stable outlook. The upgrade reflects the company's significantly reduced debt and leverage, its history of issuing new equity for acquisitions, its scale in the service industry, and its switch to a profit-driven business model. The ratings are also based upon the agency's belief that Key will continue its objective of further debt reductions and that large acquisitions will be funded by a balance of equity and debt. According to Moody's, the management team at Key skillfully delevered the company while actively consolidating in the oil and gas services sector. Returning from near ruin due to highly leveraged acquisitions through 1999, the company has since completed 16 acquisitions, while reducing its debt to capitalization ratio from 88% to 42% with run rate debt to EBITDA declining from 9.6 times to 3.2 times. Moody's recognizes the regional geographical spread of the Midland, Texas-based company's operations as well as its exposure to the oil and gas sectors, which generates more durable and repeat business.