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Investing.com -- Moody’s Ratings has downgraded the Corporate Family Rating (CFR) of Nine Energy Service (NYSE:NINE), Inc. (Nine) from Caa1 to Caa2, and its Probability of Default Rating (PDR) to Caa2-PD from Caa1-PD. The rating of Nine’s senior secured notes has been lowered to Caa3 from Caa2. The company’s Speculative Grade Liquidity (SGL) rating was also revised to SGL-4 from SGL-3. The outlook for Nine has been changed to negative from stable.
Moody’s Vice President, Thomas Le Guay, stated that the downgrade and negative outlook reflect Nine’s weakened liquidity amid an ongoing challenging industry environment. The Caa2 CFR rating reflects the high risk of financial restructuring, including a distressed exchange, due to the company’s high debt level compared to its earnings capacity.
The negative outlook indicates the risk of further slowdown in onshore rig activity in the U.S., which could further strain Nine’s liquidity. If operating conditions continue to worsen, the company’s capital structure could become untenable.
Nine’s CFR reflects the company’s relatively small size and high leverage in the highly cyclical oilfield services industry. Its operating performance is highly sensitive to new well activity in the U.S. The company has been negatively impacted by the continuous decline in onshore rig activity in the U.S. since early 2023, resulting in a 27% decline in adjusted EBITDA to $53 million in 2024.
Despite its challenges, Nine benefits from diversification across multiple business lines within the oilfield services industry, exposure to various U.S. basins, and a small but growing exposure to international markets. The company has no near-term maturities, with its Asset-Based Lending (ABL) facility maturing in January 2027 and its senior secured notes in February 2028.
The SGL-4 rating reflects Moody’s view of the company’s weak liquidity. As of December 31, 2024, Nine’s $24 million availability under its ABL facility was constrained by its springing minimum fixed charge coverage ratio covenant. The borrowing base of the ABL revolver decreased to $74 million as of December 31, 2024, due to lower accounts receivable and inventory. The company’s liquidity is primarily supported by $28 million of cash and cash equivalents as of December 31, 2024.
Nine’s senior secured notes, worth $300 million and due in February 2028, are rated Caa3, one notch below the Caa2 CFR, reflecting their subordination to the ABL facility.
Factors that could lead to further downgrades include increasing default risk or a lowering of expected recoveries. On the other hand, factors that could lead to an upgrade include a stronger than expected increase in revenues and profitability, sufficient debt reduction to achieve a tenable capital structure, and improving liquidity.
Nine Energy Service, Inc., based in Houston, Texas, is a publicly traded provider of oilfield services to oil and gas exploration and production companies, focusing on well completions. In 2024, Nine reported $554 million of revenue and $53 million of adjusted EBITDA.
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