SPN’s and peers’ net debt
Superior Energy Services’ (SPN) net debt fell in 3Q16 as compared to 3Q15. In 3Q16, Superior Energy Services’ net debt was $1.0 billion—9% lower than in 3Q15. Remember, net debt refers to aggregate short and long-term debt minus cash and cash equivalents.
The net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio reflects how easily a company can repay its debts from its operational earnings and available cash. Adjusted EBITDA excludes extraordinary charges like goodwill and asset impairment.
Superior Energy Services’ indebtedness was 6.9x by the end of 3Q16, as compared to ~0.8x in 3Q15. Although its net debt is falling, SPN’s indebtedness shot up as its adjusted EBITDA fell sharply. Notably, SPN makes up 0.13% of ProShares Ultra Oil & Gas ETF (DIG).
SPN’s credit squeeze
During 3Q16, SPN repaid $250 million of its revolver balance. SPN’s debt-to-capital ratio was 46% by September 30, 2016. In July 2016, SPN amended its revolving credit facility. This followed SPN’s earlier credit facility amendment in February.
Through the second amendment, the credit facility shrank from $470 million to $400 million. The facility limited SPN’s ability to pay dividends and make equity repurchases. The net debt-to-EBITDA covenant was suspended until 4Q17. SPN does not have any senior note maturing before 2019.
Previously, 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 and Poor’s downgraded SPN’s outstanding debt.
Now let’s discuss Superior Energy Services’ free cash flows.