Assessing Basic Energy Services’ Net Debt after 2Q17
Basic Energy Services’ net debt
In 2Q17, Basic Energy Services’ (BAS) total debt rose ~7% from 1Q17. Cash and marketable securities fell 32% during the same period. In effect, net debt rose 18% from 1Q17 to 2Q17. Net debt is total debt minus cash and marketable securities. BAS’s indebtedness (net debt to EBITDA ratio) wasn’t meaningful in 2Q17 as a result of its negative adjusted trailing-12-month (or TTM) EBITDA (earnings before interest, tax, depreciation, and amortization).
Net debt to EBITDA (or indebtedness) reflects how easily a company can repay its debts from its operational earnings and available cash. Adjusted EBITDA excludes impairment and other non-recurring charges.
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Net debt for BAS’s peers
Basic Energy Services’ larger-market-cap peer Schlumberger’s (SLB) indebtedness in 2Q17 was 1.8x while Nabors Industries’ (NBR) indebtedness was 6.2x. McDermott International’s (MDR) indebtedness was 0.5x in 2Q17.
SLB is 19% of the VanEck Vectors Oil Services ETF (OIH). Year-to-date, OIH fell 25% compared to an 18% fall in SLB’s stock price during the same period. Read more about Schlumberger in Market Realist’s Schlumberger Sees Twists and Turns before Its Recovery.
Debt restructuring led to BAS’s debt reduction
On December 23, 2016, following its emergence from bankruptcy, Basic Energy Services completed debt restructuring and recapitalization plan. Under the restructuring, BAS converted $800 million of unsecured debt into equity and raised $125 million of new capital. This move deleveraged BAS’s balance sheet substantially and provided necessary capital infusion. BAS’s long-term debt-to-equity, which ran as high as ~8x in 4Q15, fell to a more manageable 0.7x in 2Q17.
Next, we’ll discuss BAS’s implied volatility and stock price forecast for the next seven days.