Enerflex outlook upgraded to positive by Moody’s Ratings

Investing.com -- Moody’s Ratings has altered the outlook of Enerflex Ltd. to positive from stable, while affirming the Ba3 corporate family rating (CFR), Ba3-PD probability of default rating, and B1 senior secured 1st lien notes rating. The speculative grade liquidity rating (SGL) for Enerflex remains unchanged at SGL-2.

The updated outlook is a result of Enerflex’s swift reduction of debt and the anticipation that leverage will stay below 2x, according to Whitney Leavens, an analyst at Moody’s Ratings. The company’s progress in debt reduction is expected to enhance financial flexibility through industry cycles and indicates a strong commitment to a conservative financial policy.

Enerflex’s CFR benefits from several factors including low leverage, recurring revenue streams, notably from the high-margin rental business underpinned by multiyear, fee-based contracts, and a global presence and vertical integration allowing for revenue diversification and competitive positioning.

However, the rating is constrained by factors such as industry cyclicality, which exposes the company to pricing pressures on short-term contract renewals and periods of lower capital investment by industry players. Other constraints include free cash flow limited by modest margins and capital intensity related to infrastructure projects, as well as exposure to geopolitical and emerging market risks.

Enerflex’s US$563 million first lien last out senior secured notes, due in October 2027, are rated B1, a notch below the corporate family rating. This reflects their junior position relative to the US$800 million first lien first out secured revolver ranking ahead of them.

As of Q1 2025, Enerflex’s total liquidity sources amounted to about $825 million, comprised of $75 million in cash, a forecast for free cash flow of about $150 million through the end of 2026, and nearly $600 million available under the $800 million committed revolver expiring in October 2026. This amount is after accounting for letters of credit totaling $86 million. The company’s US$563 million in notes are not due until October 2027.

Enerflex’s secured revolver is subject to interest and leverage maintenance covenants, including net debt to EBITDA below 4x. It is expected that the company will remain in compliance with all financial covenants and has some flexibility to raise alternate sources of liquidity through asset sales.

The positive outlook reflects the expectation that Enerflex will maintain leverage around 2x or lower through 2026 while generating free cash flow.

The ratings could be upgraded if Enerflex continues to increase scale and contracted revenues while sustaining adjusted debt to EBITDA below 2x, generating meaningful free cash flow, and maintaining good liquidity. On the other hand, the ratings could be downgraded if debt to EBITDA is sustained above 3x, there is sustained negative free cash flow, liquidity weakens, or financial policies become more aggressive.

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