Rating Action Reflects Improved Financial Flexibility
Moody’s Investors Service has upgraded the outlook for Enerflex Ltd. to “positive” while affirming its Ba3 Corporate Family Rating (CFR), Ba3-PD Probability of Default Rating, and B1 senior secured first lien notes rating. The company’s Speculative-Grade Liquidity (SGL) rating remains unchanged at SGL-2.
Key Drivers of Outlook Upgrade
Rapid Debt Reduction:
Enerflex has demonstrated significant progress in reducing leverage
Expected to maintain leverage below 2x in the near term
Enhanced Financial Flexibility:
Deleveraging efforts strengthen the company’s ability to navigate industry cycles
Reflects commitment to conservative financial policies
Credit Strengths Supporting the Rating
Enerflex’s Ba3 CFR benefits from several positive factors:
Low Leverage Position: Maintains strong balance sheet metrics
Recurring Revenue Streams:
Particularly from high-margin rental operations
Supported by multi-year, fee-based contracts
Global Operations & Vertical Integration:
Enables revenue diversification
Sustains competitive advantages
Rating Constraints
The rating faces limitations from:
Industry Cyclicality:
Exposure to pricing pressures during contract renewals
Periods of reduced capital investment by industry participants
Cash Flow Limitations:
Moderate profit margins
Capital-intensive infrastructure projects
Limited free cash flow generation
Risk Exposures:
Geopolitical risks
Emerging market exposures
Debt Structure Analysis
First Lien Secured Notes:
$563 million senior secured first lien notes (due October 2027) rated B1
One notch below CFR due to subordination
Backed by $800 million first lien revolving credit facility
Liquidity Position (as of Q1 2025):
Total liquidity sources: ~$825 million
$75 million cash on hand
~$150 million projected free cash flow through 2026
~600millionavailableunder800 million committed revolver (due October 2026)
Accounts for $86 million in letters of credit
Note maturity profile favorable (next maturity in October 2027)
Financial Covenants and Policy
Credit Facility Covenants:
Requires maintenance of net debt/EBITDA ratio below 4x
Management’s Approach:
Expected to remain in compliance with all financial covenants
Maintains flexibility through potential asset sales
Rating Sensitivities
Upgrade Triggers:
- Sustained leverage below 2x through 2026
- Continued free cash flow generation
- Expansion of contract revenues
Downgrade Triggers:
- Debt/EBITDA ratio persistently above 3x
- Persistent negative free cash flow
- Liquidity deterioration
- Shift toward more aggressive financial policies
Market Implications
The outlook upgrade to “positive” signals Moody’s confidence in Enerflex’s:
- Debt Reduction Trajectory
- Financial Policy Discipline
- Ability to Navigate Cyclical Challenges
Investors should monitor:
- Progress on leverage reduction targets
- Free cash flow generation relative to expectations
- Contract backlog developments
- Potential M&A activity or asset sales
The rating action reflects Enerflex’s improved credit profile following strategic initiatives to strengthen its balance sheet while maintaining operational performance in a challenging industry environment.
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