Research: Rating Action: Moody’s assigns a B2 rating to ProFrac’s deferred draw term loan

New York, August 05, 2022 — Moody’s Investors Service (“Moody’s”) has assigned a B2 rating to the Deferred Term Loan (DDTL) of ProFrac Holdings II, LLC (ProFrac). ProFrac’s other ratings, including its B2 Corporate Family (CFR) rating, B2 senior secured term loan rating and stable outlook, remain unchanged.

The company amended its term loan agreement to increase its term loan facility by $150 million and also to provide DDTL. The DDTL anticipates a potential principal amount of up to $100 million to be drawn upon by ProFrac at its discretion until (i) the completion of the previously disclosed agreement for ProFrac to acquire US Well Services (USWS) and ( (ii) March 31, 2023.

Proceeds from the supplemental term loan were used to fund the previously disclosed acquisition of SP Silica sand businesses from Monahans, LLC and SP Silica Sales, LLC (together, Monahans) for approximately $90 million. The balance of the proceeds, together with operating cash, will be used to facilitate the proposed acquisition of USWS, to pay outstanding debt under the Company’s ABL credit facility and for general corporate purposes. company.

The following rating action was taken:

Duties:

..Issuer: ProFrac Holdings II, LLC

….Gtd. Senior Secured Deferred Draw Term Loan, Assigned B2 (LGD4)

RATINGS RATIONALE

ProFrac’s existing senior secured term loan and supplemental term loan (total outstanding amount of $452 million at closing of supplemental term loan transaction) maturing in March 2025 are rated B2, like the CFR. The DDTL is also rated B2 because it will be in the same debt category as the term loan once it is used. Term and DDTL loans have a first lien on all assets of the borrower and guarantors, including subsidiaries, except for ABL collateral where they have a second lien. The $200 million ABL Revolving Credit Facility matures in March 2027 and has a first lien claim on all borrower working capital assets (ABL collateral) and a second lien claim on all other assets of the borrower and of the guarantors. Although the ABL has a priority claim on the most liquid collateral, the size of the ABL facility relative to term loans and DDTL does not result in a reduction in the B2 CFR term loan. However, if the company were to increase the size of the ABL on a committed basis, it could put pressure on the term loan and DDTL ratings. The company also has an initial financial loan of $24 million maturing in July 2025, secured by a small subset of ProFrac’s tractor assets.

ProFrac’s B2 reflects the company’s improved business profile, as well as Moody’s expectation that a substantial improvement in cash flow generation in 2022 and the recent public equity offering will reduce ProFrac’s reliance on regard to debt to finance its growth and operations. ProFrac expands its business through acquisitions. The most recently announced acquisition of USWS will continue to increase ProFrac’s scale, market position and competitive product offerings. The combined company will benefit from a significantly improved offering of electric fracturing services, as well as a broader portfolio of active fleets. ProFrac will also benefit from its vertically integrated business model with enhanced manufacturing and distribution capabilities and enhanced fulfillment capabilities. Following the IPO, ProFrac is well positioned to finance its growth through a combination of public fundraising, operating cash flow and certain borrowings. Moody’s expects ProFrac to generate strong cash flow from operations in 2022. The larger fleet, improved utilization rates and higher prices for its fleet have boosted cash flow generation from ProFrac faster than previous Moody’s expectations. The acquisition of sand businesses, manufacturing businesses and other cost saving measures are expected to improve the company’s cash margins.

The company’s credit profile is tempered by the strong cyclicality of the Oilfield Services (OFS) sector. While the company’s financial leverage has improved slightly in 2021 and is expected to continue to improve in 2022 as earnings increase, the company’s wider range of services makes it entirely dependent on demand. highly cyclical pressure pumping services. Hydraulic fracturing service – ProFrac’s unique service line – is uniquely competitive and is dominated by several large companies that have greater financial resources and a greater diversity of product and service lines than ProFrac.

ProFrac’s stable outlook reflects improved cash generation through rate increases for its fleet and greater financial flexibility, supported by the recent IPO.

FACTORS THAT MAY LEAD TO AN IMPROVEMENT OR DEGRADATION OF THE RATING

Factors that could lead to an improved rating include sustainable EBITDA growth in a significantly improving industry environment, debt reduction, continued good liquidity and conservative financial policies.

Factors that could cause a rating downgrade include debt/EBITDA above 4x, EBITDA/interest below 3x, deteriorating liquidity or more aggressive financial policies.

ProFrac, headquartered in Willow Park, Texas, and 100% owned by ProFrac Holding Corp. (NASDAQ: PFHC), is a vertically integrated provider of hydraulic fracturing services to E&P companies in the United States. ProFrac is largely owned by the Wilks family.

The main methodology used in this rating is Oilfield Services published in August 2021 and available at https://ratings.moodys.com/api/rmc-documents/74277. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.

The rating has been communicated to the rated entity or its designated agent(s) and issued without modification as a result of such communication.

This rating is requested. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Sreedhar Kona
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
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Peter Speer
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

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