Superior Energy Services’ net debt-to-EBITDA
Superior Energy Services’ (SPN) net debt-to-adjusted trailing-12-month EBITDA (earnings before interest, tax, depreciation, and amortization) shot up in 2Q16. In the quarter, the company’s net debt-to-adjusted EBITDA multiple was 5.1x.
Net debt-to-EBITDA reflects how easily a company can repay its debt from its operational earnings and available cash. Adjusted EBITDA excludes extraordinary charges such as goodwill and asset impairment.
Superior Energy Services’ indebtedness
SPN’s net debt-to-adjusted EBITDA multiple rose from 1Q15 to 2Q16. In 2Q16, SPN’s total debt fell ~7% over 2Q15 to $1.6 billion. Its cash and marketable securities fell marginally during the same period, leading to 9% lower net debt.
SPN’s actual EBITDA was negative in 2Q16. Its adjusted EBITDA fell sharply from 2Q15 to 2Q16. In effect, its net debt-to-EBITDA ratio rose significantly.
SPN’s credit squeeze
In July 2016, SPN amended its revolving credit facility and repaid $250 million in debt. This followed the company’s earlier credit facility amendment in February. Through the amendment, its credit facility shrank from $470 million to $440 million. The facility limited SPN’s ability to pay dividends, change its debt covenant, and make equity repurchases. SPN doesn’t have any senior notes maturing before 2019.
Following the first credit facility amendment, SPN terminated its dividend payment in March. Also, during 1Q16, credit rating agencies Moody’s Investors Service and Standard & Poor’s downgraded SPN’s outstanding debt.
Next, let’s discuss Superior Energy Services’ free cash flow.