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July 12, 2022
STEP Energy Services Ltd. Extended credit facility lengthens financial horizon
TSX: STEP | CAD 4.22 | Outperform | Speculative Risk | Price Target CAD 10.00
Sentiment: Positive Our view: We believe STEP’s three-year extension of its credit facilities should provide the company with financial flexibility to execute its near-to-medium term operating plans. We believe the near-term debt maturity has likely weighed on the stock, and today's announcement lengthens its financial horizon through the pressure pumping upcycle. Based on our current estimates for 2022/23, the company should remain onside with its current funded debt to EBITDA maximum covenant of 3.0x and its interest coverage of 3.0x minimum, as detailed below.
Amends and extends credit facilities. The revised credit facilities include a $215MM ($200MM prior) operating credit facility, $15MM operating facility, and US$15MM operating facility. The facilities have a three-year term, expiring July 12, 2025. At 1Q22, STEP had $192MM outstanding on its exting facility. Financial covenants include 1) Funded debt/EBITDA less than 3.0x; and 2) Interest coverage ratio as least 3.0x. We estimate STEP's 2022/23 funded debt/EBITDA leverage will improve to 1.1x/0.9x, given our outlook for improved FCF generation. While interest rates were not disclosed, STEP will pay fees and expenses at prevailing market rates.
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